Bellsouth Tele Inc v. SE Tele Inc ( 2006 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 06a0322p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Plaintiff-Appellant, -
BELLSOUTH TELECOMMUNICATIONS, INC.,
-
-
-
No. 05-6657
v.
,
>
SOUTHEAST TELEPHONE, INC. and PUBLIC SERVICE -
-
Defendants-Appellees. -
COMMISSION OF KENTUCKY,
-
N
Appeal from the United States District Court
for the Eastern District of Kentucky at Frankfort.
No. 04-00084—Joseph M. Hood, Chief District Judge.
Argued: July 19, 2006
Decided and Filed: August 28, 2006
Before: GILMAN and SUTTON, Circuit Judges; HOOD, District Judge.*
_________________
COUNSEL
ARGUED: Sean A. Lev, KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL,
Washington, D.C., for Appellant. Jonathon Nicholas Amlung, Louisville, Kentucky, Amy E.
Dougherty, KENTUCKY PUBLIC SERVICE COMMISSION, Frankfort, Kentucky, for Appellees.
ON BRIEF: Mark R. Overstreet, STITES & HARBISON, Frankfort, Kentucky, Dorothy J.
Chambers, BELLSOUTH TELECOMMUNICATIONS, INC., Louisville, Kentucky, for Appellant.
Amy E. Dougherty, John E.B. Pinney, KENTUCKY PUBLIC SERVICE COMMISSION, Frankfort,
Kentucky, Christopher T. Handman, David L. Sieradzki, Martin A. Price, HOGAN & HARTSON,
Washington, D.C., for Appellees.
_________________
OPINION
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RONALD LEE GILMAN, Circuit Judge. The principal question in this appeal is whether
the Public Service Commission of Kentucky (the PSC) correctly applied a superseded Federal
Communications Commission (FCC) regulation on the ground that application of the current
regulation to a pending case would be impermissibly retroactive. This issue arises in the context of
*
The Honorable Denise Page Hood, United States District Judge for the Eastern District of Michigan, sitting
by designation.
1
No. 05-6657 BellSouth Telecommunications v. Southeast Page 2
Telephone, et al.
Southeast Telephone, Inc.’s attempt to modify the terms of its contract with BellSouth
Telecommunications, Inc. Underlying the dispute is a complex statutory and regulatory scheme, as
well as important principles of retroactivity analysis. The district court agreed that applying the
current FCC rule would be impermissibly retroactive, and thus upheld the administrative ruling. For
the reasons set forth below, we REVERSE the judgment of the district court and REMAND the
case with instructions to vacate the order of the PSC.
I. BACKGROUND
A. Statutory and regulatory background
In passing the Telecommunications Act of 1996 (Act), 47 U.S.C. § 251 et seq., Congress
sought to “end[] the longstanding regime of state-sanctioned monopolies” in the local telephone
markets. AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1999). To that end, the Act imposes
on incumbent local exchange carriers (ILECs) the obligation to share their existing networks with
new entrants to the market, who are referred to as competing local exchange carriers, or CLECs.
See id.; 47 U.S.C. § 251(c). The Act, as this court has explained,
specifies three methods of competition: 1) the ILEC must provide to a CLEC that has
or builds its own local telephone network, interconnection with the ILEC’s network;
2) the ILEC must provide access to its own “network elements” on an “unbundled”
basis to a CLEC wishing to acquire a network by leasing all or part of the ILEC’s
network, and 3) the ILEC must sell its retail services at wholesale prices to a CLEC
planning simply to resell the incumbent’s services at retail prices.
Michigan Bell Tele. Co. v. Strand, 305 F.3d 580, 582 (6th Cir. 2003) (citations omitted).
One of the key obligations imposed by the Act is the requirement that ILECs make
“interconnection” and “network elements” services available to a CLEC that requests those
services. See id.; 47 U.S.C. § 252(c)(2). Interconnection is the actual physical “linking of two
networks for the mutual exchange of traffic.” 47 C.F.R. § 51.5. Network elements, as the name
indicates, are individual components of the ILEC’s existing network, “including but not limited to,
subscriber numbers, databases, signaling systems, and information sufficient for billing and
collection.” Id. These services must be provided “on rates, terms and conditions that are just,
reasonable, and nondiscriminatory.” 47 U.S.C. § 251(c)(2)(D).
ILECs are not, however, required to provide these services to CLECs free of charge. Instead,
the Act includes “specified procedures for forming ‘interconnection agreements,’ the
Congressionally prescribed vehicle for implementing the substantive rights and obligations set forth
in the Act.” Strand, 305 F.3d at 582. Parties may reach these agreements through direct negotiation
or arbitration, although the agreements remain subject to the approval of the relevant state’s
regulatory commission. If the agreement is a negotiated one, the state commission may reject it only
by finding (1) that the agreement discriminates against a carrier not a party to the agreement, or
(2) that the agreement “is not consistent with the public interest, convenience, and necessity.” 47
U.S.C. § 252(e)(2)(A). State commissions may reject arbitrated agreements that fail to comply with
the statutory requirements, including the pricing standards set forth in § 252(d) of the Act.
An additional duty imposed on ILECs is at the heart of this case. Section 252(i) of the Act
requires ILECs to “make available any interconnection, service, or network element provided under
an agreement . . . to which it is a party to any other requesting telecommunications carrier upon the
same terms and conditions as those provided in the agreement.” This section effectively allows a
CLEC to “opt in” to the terms of an agreement that an ILEC has previously entered into with another
No. 05-6657 BellSouth Telecommunications v. Southeast Page 3
Telephone, et al.
carrier and that a state commission has already approved. See BellSouth Telecomm., Inc. v.
Universal Telecom, Inc., - - F.3d - - , 2006 WL 2032866, at *1 (6th Cir. July 21, 2006) (explaining
that § 252(i) “permits an entrant to a local telephone market . . . to forgo negotiation or arbitration
with an incumbent (like BellSouth) by adopting a previously negotiated or arbitrated interconnection
agreement between the incumbent and another carrier”). What the statute does not specify, however,
is whether a CLEC that chooses to opt in can do so on a service-by-service (or term-by-term) basis
or must instead agree to be bound by the entirety of the existing interconnection agreement.
The FCC initially resolved this ambiguity in favor of the former interpretation when it
promulgated what came to be known as the “pick-and-choose rule.” See First Report and Order,
Implementation of Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC
Rcd. 15499, 16139 ¶ 1314 (1996) (“First Report and Order”). This rule permitted CLECs “to obtain
access under section 252(i) to any individual interconnection, service, or network element
arrangement on the same terms and conditions as those contained in any agreement approved under
section 252,” id. (emphasis added), and also instructed state commissions to adjudicate opt-in
requests on “an expedited basis.” Id. at 16141 ¶ 1321. The final version of the rule, which was
codified at 47 C.F.R. § 51.809 (1997), highlighted the importance of expeditiously processing claims
by requiring ILECs to make the covered services and facilities available to CLECs “without
unreasonable delay.” Id. § 51.809(a).
At the same time, the final rule explicitly permitted ILECs to raise specified challenges
before the state commission regarding a CLEC’s attempt to opt in to the terms of an existing
agreement. Three limitations on a CLEC’s power to opt in were included in the final rule, and a
fourth was set forth in the First Report and Order. First, an individual agreement was available for
opting in only “for a reasonable period of time after the approved agreement is available for public
inspection under [the Act].” Id. § 51.809(c); see BellSouth Telecomm., Inc., - - F.3d - -, 2006 WL
2032866, at *1 (recognizing that “[t]he right to adopt an existing interconnection agreement contains
several limitations, one of which is time”).
The final rule also permitted ILECs to interpose a challenge to the requested opt in on one
of two other grounds: (1) that “[t]he costs of providing a particular interconnection, service, or
element to the requesting [CLEC] are greater than the costs of providing it to the
telecommunications carrier that originally negotiated the agreement,” or (2) that “[t]he provision of
a particular interconnection, service, or element to the requesting carrier is not technically feasible.”
47 C.F.R. § 51.809(b) (1997); see also Global NAPs, Inc. v. Verizon New England, Inc., 396 F.3d
16, 26 (1st Cir. 2005) (describing these three “limitations to a CLEC’s opt in rights under § 252(i)”).
Finally, the FCC explained in its First Report and Order that ILECs could “require a third party [to]
agree to certain terms and conditions” beyond the requested service so long as the ILEC proved “to
the state commission that the terms and conditions were legitimately related to the purchase of the
individual element being sought.” 11 FCC Rcd. at 16139 ¶ 1315.
ILECs across the country challenged the validity of the pick-and-choose rule, eventually
convincing the Eighth Circuit to strike it down. See Iowa Utils. Bd. v. FCC, 120 F.3d 753, 801 (8th
Cir. 1997). But the Supreme Court reversed the Eighth Circuit, holding that “[t]he FCC’s
interpretation is not only reasonable, it is the most readily apparent.” AT&T Corp. v. Iowa Utils.
Bd., 525 U.S. 366, 396 (1999). The Court rejected the ILECs’ contention, endorsed by the Eighth
Circuit, that the rule unreasonably “threaten[ed] the give-and-take of negotiations” because ILECs
would not make concessions in any agreement out of fear that all other market entrants could benefit
from the same concession. Id. at 395. In so ruling, however, the Court emphasized both the
protections afforded ILECs by the rule itself and by the FCC’s statement that an ILEC “can require
a requesting carrier to accept all terms that it can prove are ‘legitimately related’ to the desired
term.” Id. at 396 (citing the First Report and Order). The Court concluded that the ultimate question
No. 05-6657 BellSouth Telecommunications v. Southeast Page 4
Telephone, et al.
of whether the rule would positively or negatively affect negotiations was “a matter eminently
within the expertise of the Commission and eminently beyond our ken.” Id.
Based upon the cumulative experience of the ILECs under the Act, the FCC decided to
change course in August of 2003. It issued a Notice of Proposed Rulemaking (NPRM) in which it
“tentatively concluded” that the pick-and-choose rule “discourages give-and-take bargaining.”
Second Report and Order, Review of the Section 251 Unbundling Obligations of Local Exchange
Carriers, 19 FCC Rcd. 13494, 13496 ¶3 (2004) (recounting the conclusions announced in the
NPRM). The FCC then proposed replacing that rule with a new one under which, if an ILEC “files
for and obtains state approval for a statement of generally available terms (SGAT), the current pick-
and-choose rule would apply only to that SGAT, and all other interconnection agreements would
be subject to an all-or-nothing rule.” Id. at 13497 ¶ 5. After further study, the FCC jettisoned this
proposal and instead promulgated a new rule that was “all or nothing” across the board. In other
words, if a CLEC wants to adopt a term or service of an existing agreement, it must opt in to the
entire agreement. See id. at 13494 ¶ 1.
The FCC intended for the new rule to go into effect immediately. Specifically, the FCC
declared that, “in order to allow this regime to have the broadest possible ability to facilitate
compromise, the new all-or-nothing rule will apply to all effective interconnection agreements,
including those approved and in effect before the date the new rule goes into effect.” Id. at 13501
¶ 10. “As of the effective date of the new rule,” therefore, “the pick-and-choose rule will no longer
apply to any interconnection agreement.” Id. Under the all-or-nothing rule, ILECs are required to
“make available without unreasonable delay to any requesting [CLEC] any agreement in its entirety
to which the [ILEC] is a party that is approved by a state commission . . . upon the same rates, terms,
and conditions as those provided in the agreement.” 47 C.F.R. § 51.809(a) (2004) (emphasis added).
The rule became effective on August 23, 2004, one month after its publication in the Federal
Register. See Final Rule, Review of Section 251 Unbundling Obligations of Incumbent Local
Exchange Carriers, 69 Fed. Reg. 43762 (July 22, 2004).
B. Factual and procedural background
BellSouth entered into an interconnection agreement with Southeast in October of 2001. The
agreement contained two clauses relevant to the present controversy. First, paragraph 12 of the
agreement governed the resolution of disputes between the parties. That paragraph provided:
Except as otherwise stated in this Agreement, if any dispute arises as to the
interpretation of any provision of this Agreement or as to the proper implementation
of this Agreement, the aggrieved Party shall petition the [PSC] for a resolution of the
dispute. However, each Party reserves any rights it may have to seek judicial review
of any ruling made by the [PSC] concerning this Agreement.
Another provision, paragraph 15, tracked the language of 47 U.S.C. § 252(i), allowing Southeast to
opt in to “any interconnection, service, or network element” provided under the existing agreement,
but also requiring Southeast to adopt “all rates, terms, and conditions . . . legitimately related to” the
other terms that it chose. The PSC approved BellSouth’s agreement with Southeast in November
of 2001.
Over a year later, BellSouth entered into a separate arbitrated agreement with Cinergy
Communications Company, another CLEC. The dispute-resolution provision of the agreement with
Cinergy differed in two notable ways from the one signed by Southeast. First, the provision
permitted the parties to “avail themselves of any available legal remedies in the appropriate forum”
with respect to all “issues over which the [PSC] does not have authority[.]” Second, the Cinergy
No. 05-6657 BellSouth Telecommunications v. Southeast Page 5
Telephone, et al.
agreement required the parties “to carry on their respective obligations under [the] Agreement while
any dispute resolution is pending.” The purpose of this latter clause was to ensure that Cinergy
retained access to BellSouth’s facilities and services—and would thus continue to be able to serve
its customers—notwithstanding any legal battles with BellSouth.
On June 8, 2004, Southeast filed with the Kentucky PSC a “Notice of Intent to Adopt Certain
Provisions” of BellSouth’s agreement with Cinergy. The only provision that Southeast sought to
adopt was the one governing “Resolution of Disputes.” Southeast expressed in the Notice its intent
“to be bound by the terms of numerical paragraphs 11 and subsection 11.1 of the [Cinergy]
agreement.” Those terms would replace the ones contained in paragraph 12 of Southeast’s
agreement with BellSouth. Insisting that its request should “be reviewed expeditiously and promptly
granted,” Southeast asked the PSC to “[a]pprov[e] the request and mak[e] the amendment to the
interconnection agreement effective as of the date of the Order.”
BellSouth opposed Southeast’s request and filed a formal objection with the PSC on June 22,
2004. In its filing, BellSouth argued that Southeast was not entitled to adopt the dispute-resolution
provision for two reasons. The first was that the plain language of both 47 U.S.C. § 252(i) and the
pick-and-choose rule in effect at the time required ILECs to “make available” to CLECs only
“interconnection[s], service[s] or network element[s].” BellSouth argued that the dispute-resolution
provision did not fall under any of these categories, so that Southeast was not entitled to opt in to
it. Second, BellSouth read its agreement with Southeast as obliging Southeast to submit any
proposed modifications to BellSouth before invoking the authority of the PSC.
The PSC issued its order on September 29, 2004. By that time, the all-or-nothing rule, which
had been published in the Federal Register as having an effective date of August 23, 2004, had
already supplanted the pick-and-choose rule. Under the new rule, as the PSC acknowledged,
Southeast’s request would have to be rejected. The PSC nevertheless concluded, in a one-sentence
analysis, that “Southeast’s adoption notice should be reviewed under the law as it existed when the
notice was filed.” According to the PSC, the dispute-resolution procedures sought by Southeast “are
an integral term and condition of a contract and directly relate to the provision of interconnection,
service, or network elements.” Southeast’s request to adopt the dispute-resolution provision from
the Cinergy agreement was therefore granted.
BellSouth requested a rehearing, which the PSC denied. The PSC’s denial order was
accompanied by an explanation of its decision to apply the FCC rule in effect at the time of
Southeast’s request. Under the PSC’s “longstanding practice,” the explanation read, Southeast’s
request would have been “granted by Order within a few days of receipt . . . but for BellSouth’s
objections.” In other words, Southeast’s request would have allegedly been granted before the pick-
and-choose rule took effect had BellSouth not filed objections. The PSC was concerned that
applying the new rule to the pending request would give ILECs an incentive “to delay proceedings
when matters are pending” in order to invoke beneficial changes in the law. Because the PSC
“would ordinarily have entered its Order” approximately one month prior to the effective date of the
new rule, the PSC decided that applying the new rule to Southeast’s adoption request would have
been “unjust.”
BellSouth challenged the decision of the PSC in the district court, arguing that (1) the PSC
erred in refusing to apply the all-or-nothing rule to Southeast’s pending adoption request, and
(2) under the plain language of the statute and the pick-and-choose rule, Southeast was not entitled
to adopt the dispute-resolution provision because that provision was not an “interconnection, service,
or network element arrangement.” The district court rejected both of these arguments and upheld
the PSC’s decision.
No. 05-6657 BellSouth Telecommunications v. Southeast Page 6
Telephone, et al.
As to BellSouth’s first challenge, the district court applied the framework set forth by the
Supreme Court in Landgraf v. USI Film Products, 511 U.S. 244 (1994) (establishing a three-step
analysis for determining whether an intervening change in the law can be properly applied to a
pending case). The court first concluded that the FCC had not expressly defined the temporal reach
of the new rule. At the second step of the Landgraf analysis, the district court reasoned that the
mandatory language in 47 U.S.C. § 252(i) granted Southeast a vested right to adopt terms contained
in other BellSouth agreements while the pick-and-choose rule was still in effect. That vested right
would be impaired, the court reasoned, by application of the all-or-nothing rule. The court thus held
that applying the new rule would be impermissibly retroactive and that, because Congress had not
explicitly endorsed such a result, the presumption against retroactivity controlled.
With respect to BellSouth’s second challenge, the district court read the statute and
regulation as allowing CLECs to opt into all “terms and conditions” of existing agreements, and
ruled that dispute-resolution provisions are an integral term and condition of the agreements under
which ILECs provide services. Finally, the court rejected BellSouth’s contention that the dispute-
resolution provision was “legitimately related” to other terms of the Cinergy agreement and that
Southeast could adopt that provision only by adopting these other terms. This timely appeal
followed.
II. ANALYSIS
A. Standard of review
We review the ruling of a state administrative body under two separate standards. Questions
of law, in particular a state commission’s interpretation of the Act, are reviewed de novo. See
Michigan Bell Tele. Co. v. MCIMetro Access Transmission Servs., Inc., 323 F.3d 348, 354 (6th Cir.
2003) (“We review the Commission’s interpretation of the Act de novo . . . , according little
deference”). On the other hand, a state commission’s “findings of fact made in the course of
exercising its enforcement authority” are reviewed under “the ‘arbitrary and capricious’ standard.”
Michigan Bell Tele. Co. v. Strand, 305 F.3d 580, 586 (6th Cir. 2003). The question presented by
this case—whether applying the all-or-nothing rule to Southeast’s pending application would have
had an impermissible retroactive effect—is a purely legal one that we will review de novo. See
MCIMetro Access, 323 F.3d at 354.
B. The district court erred in concluding that application of the all-or-nothing rule
to Southeast’s request would have had an impermissible retroactive effect
The Supreme Court has struggled in recent years to resolve the “apparent tension” between
“two seemingly contradictory statements found in [its] decisions concerning the effect of intervening
changes in the law.” Landgraf v. USI Film Prods., 511 U.S. 244, 263-64 (1994). As a general rule,
a court must “apply the law in effect at the time it renders its decision.” Id. at 264 (quoting Bradley
v. School Bd. of Richmond, 416 U.S. 696, 711 (1974)) (quotation marks omitted). Because
“[r]etroactivity is not favored in the law,” however, courts should not construe “congressional
enactments and administrative rules . . . to have retroactive effect unless their language requires this
result.” Id. (quoting Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)) (quotation marks
omitted). In other words, courts should apply the law in effect at the time that they decide a case
unless that law would have an impermissible retroactive effect as that concept is defined by the
Supreme Court. See Patel v. Gonzales, 432 F.3d 685, 691 (6th Cir. 2005) (“Courts should apply the
law in effect at the time of the decision, unless such law has a retroactive effect on the parties.”).
The difficult issue in these cases is deciding under what circumstances a statute or regulation
operates retroactively. Answering this question, as the Supreme Court has noted, “is not always a
No. 05-6657 BellSouth Telecommunications v. Southeast Page 7
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simple or mechanical task.” Landgraf, 511 U.S. at 268. For one thing, “[a] statute does not operate
‘retrospectively’ merely because it is applied in a case arising from conduct antedating the statute’s
enactment, or upsets expectations based in prior law.” Id. at 269 (citation omitted). Courts must
accordingly “ask whether the new provision attaches new legal consequences to events completed
before its enactment,” id. at 269-70, such as by “impair[ing] rights a party possessed when he acted,
increas[ing] a party’s liability for past conduct, or impos[ing] new duties with respect to transactions
already completed.” Id. at 280. In making this determination, courts take “sound guidance” from
“familiar considerations of fair notice, reasonable reliance, and settled expectations.” Id. at 270.
The Supreme Court recently confirmed the “sequence of analysis” to be employed “when
an objection is made to applying a particular statute said to affect a vested right or to impose some
burden on the basis of an act or event preceding the statute’s enactment.” Fernandez-Vargas v.
Gonzales, 548 U.S. ___, 126 S. Ct. 2422, 2428 (2006). A reviewing court must first examine
whether Congress has expressly prescribed the statute’s proper reach, and in the
absence of language as helpful as that we try to draw a comparably firm conclusion
about the temporal reach specifically intended by applying our normal rules of
construction. If that effort fails, we ask whether applying the statute to the person
objecting would have a retroactive consequence in the disfavored sense of affecting
substantive rights, liabilities, or duties on the basis of conduct arising before its
enactment. If the answer is yes, we then apply the presumption against retroactivity
by construing the statute as inapplicable to the event or act in question owing to the
absence of a clear indication from Congress that it intended such a result.
Id. (citations, quotation marks, and alterations omitted).
The district court in the present case concluded, and none of the parties dispute, that the
FCC’s all-or-nothing rule does not set forth its “temporal reach,” and that neither Congress nor the
FCC has addressed the application of the new regulation to pending cases. Under the framework
set forth above, therefore, the dispositive question before us is “whether applying the [all-or-nothing
rule] to [Southeast’s request] would have a retroactive consequence in the disfavored sense of
affecting substantive rights, liabilities, or duties on the basis of conduct arising before its
enactment.” See id. (citation, quotation marks, and alterations omitted).
1. Applying the “all-or-nothing rule” to Southeast’s request would not
be impermissibly retroactive
At the heart of the dispute lies Southeast’s contention, accepted by the district court, that
Southeast acquired a vested right to adopt the dispute-resolution provision in question upon filing
its notice of intent with the PSC. Southeast’s principal argument, therefore, is that applying the
later-promulgated all-or-nothing rule to its adoption request would “impair a vested right” and be
impermissibly retroactive under Landgraf. See 511 U.S. at 269 (endorsing Justice Story’s statement
that a statute that “takes away or impairs vested rights acquired under existing laws . . . must be
deemed retrospective”). We agree with BellSouth, however, that a proper understanding of the
statutory framework demonstrates that Southeast acquired no vested rights upon the filing of its
adoption request.
Neither § 252(i) of the Act nor the FCC regulations interpreting it create an unconditional
opt-in right or “guarantee” that a CLEC’s adoption request will be granted. To the contrary, both
the pick-and-choose rule and the current all-or-nothing rule contemplate a regime under which
ILECs retain the ability to challenge opt-in requests. The pick-and-choose rule, as explained in Part
I.A. above, permitted ILECs to oppose an adoption request on the bases of comparable cost and
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Telephone, et al.
technical feasibility, and also on the ground that the CLEC waited too long after the publication of
the original agreement to invoke its opt-in right. 47 C.F.R. § 51.809 (1997); see also BellSouth
Telecomm., Inc. v. Universal Telecom, Inc., - - F.3d - - , 2006 WL 2032866, at *5 (6th Cir. July 21,
2006) (explaining that “the regulation by its terms links the reasonableness of an adoption to the
passage of time”).
In addition to the above three grounds, the First Report and Order included a fourth
limitation on the opt-in right, allowing ILECs to “require a requesting carrier to accept all terms that
it can prove are ‘legitimately related’ to the desired term.” AT&T Corp. v. Iowa Utils. Bd., 525 U.S.
366, 396 (1999) (quoting the First Report and Order). These grounds for challenging a CLEC’s
entitlement to opt in to an existing agreement would be meaningless if, as Southeast and the PSC
maintain, Southeast’s adoption request became effective (and binding) at the moment that the
request was filed.
A recent decision by the First Circuit also refutes Southeast’s contention that the opt-in right
conferred by the Act and the regulation was unconditional and automatic. See Global NAPs, Inc.
v. Verizon New England, Inc., 396 F.3d 16 (1st Cir. 2005). In that case, the CLEC (Global NAPs)
entered into unsuccessful negotiations with the ILEC (Verizon New England). The parties
eventually asked that the disputed aspects of their negotiation be arbitrated by the Massachusetts
state commission, which resolved the open issues and ordered the parties to incorporate the terms
into their agreement by a certain date. Id. at 19-20. Before that deadline passed, however, Global
NAPs refused to accede to the arbitrated agreement and instead sought to opt in to an existing
agreement between Verizon and Sprint. Id. at 20. The state commission denied Global NAPs’s opt-
in request and ordered it to comply with the commission’s previous ruling. Id. at 20-21. Both the
district court and the First Circuit affirmed.
In a section of its analysis especially pertinent to the present case, the First Circuit rejected
Global NAPs’s contention that “§ 252(i) gives it an unconditional right to . . . opt into a previously
available agreement.” Id. at 24. Reading that section “in light of the structure and intent of the
statute,” the First Circuit concluded that § 252(i) “is written in terms of an obligation on the part of
ILECs to make agreements available to potential CLECs, not as an unconditional right.” Id. at 24-25
(emphasis added). The court then interpreted the FCC regulations—and the pick-and-choose rule
in particular—as supporting the same conclusion. It reasoned as follows:
The FCC regulation 47 C.F.R. § 51.809 itself rejects Global NAPs’ premise that
§ 252(i) grants an unconditional right to CLECs to adopt the terms of any
interconnection agreement the ILEC has with another CLEC. The obligation of
ILECs to make those agreements available to other CLECs is itself subject to
conditions: comparable-cost, technical-feasibility, and the reasonable-time
restrictions are three such conditions contemplated by the regulation.
Id. at 26.
The First Circuit’s analysis elucidates two propositions crucial in the context of the present
case. First, § 252(i) speaks in terms of an ILEC’s obligations, not in terms of a CLEC’s rights. The
second and related proposition is that, because the obligations of the ILEC are not absolute, any
concomitant rights conferred upon CLECs are similarly limited and therefore conditional.
If a CLEC’s opt-in rights are “conditional,” upon what are they conditioned? The answer,
simply stated, is that the right to adopt the provision of an existing agreement is contingent upon a
state commission’s determination that such an adoption is proper under the statute and the governing
regulation. Southeast appears to concede this point in part, admitting that “the Kentucky PSC had
No. 05-6657 BellSouth Telecommunications v. Southeast Page 9
Telephone, et al.
to formally approve the revision to the interconnection agreement, and BellSouth had the option to
propose to incorporate additional terms and conditions in connection with the provision that
Southeast specified for ‘opt in.’” In the next breath, however, Southeast insists that its “vested ‘opt
in’ right was not contingent upon the PSC’s process for approving the revised agreement” because
such a result would contravene the FCC’s statement that CLECs need not “undergo a lengthy
negotiation and approval process . . . before being able to utilize the terms of a previously approved
agreement.” See First Report and Order, 11 FCC Rcd. at 16141 ¶ 1321.
But Southeast cannot have it both ways—opting in to the existing agreement either was or
was not “an already-completed event” at the moment that the request was filed. Southeast’s
acknowledgment that its attempt to revise the agreement did not become final until the PSC
approved its request contradicts its argument that the PSC’s approval process “amounted to a
recognition of an already-completed event.” If, as Southeast appears to concede, the opt-in request
did not become final until approval by the PSC, then the event simply was not completed at the time
of filing. This conclusion is confirmed by the language that Southeast itself used in the adoption
request, where it asked the PSC to “[a]pprov[e] the request and mak[e] the amendment to the
interconnection agreement effective as of the date of the Order.” (Emphasis added.) Again, if the
opt in was truly finalized at the time the request was filed, one would expect Southeast to have
sought a nunc pro tunc order in which the PSC formally approved the adoption and made it effective
as of the date of the initial request. But Southeast sought nothing of the kind.
A hypothetical example might help to illuminate the problematic nature of Southeast’s
position. Assume that the dispute-resolution provision in the original agreement called for the
parties to submit all disputes to the PSC. The provision in the Cinergy agreement, in contrast,
allows the parties to take disputes falling outside the PSC’s jurisdiction directly to court. Southeast
proceeds to file its adoption request on June 8, 2004, with the expectation that the PSC will act on
that request in a matter of weeks. Assume now that a major dispute outside of the PSC’s jurisdiction
arises between Southeast and BellSouth on June 10, 2004, well before the PSC is expected to act.
Could Southeast immediately invoke the new dispute-resolution provision that it has sought to adopt
and thus file suit against BellSouth directly in court, rather than file a grievance with the PSC? We
believe that the proper answer is clearly “no,” because Southeast cannot invoke a provision that has
not yet been declared part of the contract between the parties.
This hypothetical illustrates a point convincingly pressed by BellSouth in its briefs: that
filing an application with an agency does not generally confer upon the applicant an inviolable right
to have the agency rule on the application pursuant to the regulations in effect at the time of filing.
See Pine Tree Med. Assocs. v. Sec. of Health and Human Servs., 127 F.3d 118, 121 (1st Cir. 1997)
(agreeing with the district court’s ruling that “the mere filing of an application is not the kind of
completed transaction in which a party could fairly expect stability of the relevant laws as of the
transaction date”). In Pine Tree Medical Associates, the plaintiff, a provider of healthcare services,
requested that a government agency designate a particular town as a “medically underserved
population,” or MUP. Id. at 120. Healthcare providers that serve MUPs may be eligible “for
substantial, cost-based reimbursement under Medicare and Medicare programs.” Id. The agency
altered the guidelines used to make the MUP determination after the provider had submitted an
application but before the agency had ruled. Using the stricter guidelines for evaluating the
provider’s request, the agency then denied the application. Id. The First Circuit found no
retroactivity problem with the use of the new guidelines, squarely rejecting “the proposition that
filing an application with an agency essentially fixes an entitlement to the application of those
substantive regulations in force on the filing date.” Id. at 122 (emphasis in original).
We agree with BellSouth that the district court’s attempt to distinguish Pine Tree Medical
Associates is unconvincing. The district court reasoned that the healthcare provider had sought “a
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prospective benefit,” whereas Southeast “notif[ied] an agency of a preexisting right to adopt.” We
have two responses to this line of reasoning. The first is that the distinction strikes us as one without
a difference. Just as the healthcare provider in Pine Tree Medical Associates claimed that it was
entitled to a statutory benefit under the regulations in effect at the time, Southeast argues that it was
entitled to the statutory opt-in benefit under an FCC regulation that was in effect at the time of its
application but repealed by the time that its request was decided. Procedurally, therefore, the present
case is on all fours with Pine Tree Medical Associates.
Second, the relief sought by Southeast, although not a governmental “benefit,” nevertheless
tilts toward being “prospective” in nature. Because the new dispute-resolution provision would take
effect as of the date of the PSC’s order, that provision would govern only the future relations
between the parties. Applying new statutes (or regulations) that “authorize[] or affect[] the propriety
of prospective relief,” the Supreme Court has said, does not raise retroactivity concerns. Landgraf,
511 U.S. at 273. The Court in Landgraf gave as an example of such a statute one that “governed the
propriety of injunctive relief against labor picketing.” Id. While the effect that a newly enacted
regulation has on how parties’ future disputes will be resolved is not directly analogous to the
Court’s injunction example, the fact that applying the all-or-nothing rule would deprive Southeast
of only a future contractual benefit serves to distinguish the present case from the “quintessentially
backward looking” damages provisions held to be impermissibly retroactive in Landgraf. Id. at 282.
One other aspect of Landgraf is particularly instructive in the present context. The Supreme
Court in that case emphasized that “[a] statute does not operate ‘retrospectively’ merely because it
. . . upsets expectations based in prior law.” Id. at 269 (emphasis added). At the end of that
sentence, the Court added an explanatory footnote elaborating on why a statute’s potential to upset
expectations that a party had formed based upon the prior state of the law was not enough, in and
of itself, to make application of that statute impermissibly retroactive:
Even uncontroversially prospective statutes may unsettle expectations and impose
burdens on past conduct: a new property tax or zoning regulation may upset the
reasonable expectations that prompted those affected to acquire property; a new law
banning gambling harms the person who had begun to construct a casino before the
law’s enactment or spent his life learning to count cards. See [L. Fuller, The
Morality of Law 60 (1964)] (“If every time a man relied on existing law in arranging
his affairs, he were made secure against any change in legal rules, the whole body
of our law would be ossified forever”). Moreover, a statute is not made retroactive
merely because it draws upon antecedent facts for its operation.
Id. at 269 n.24 (citations and quotation marks omitted). In other words, the fact that parties engage
in conduct on the assumption that the law will allow them to act or to benefit in a certain manner is
not a sufficient reason to refuse to apply a new law that renders that assumption misplaced.
One of the cases cited by BellSouth drives this point home. In Southwest Center for
Biological Diversity v. U.S. Department of Agriculture, 314 F.3d 1060, 1061 (9th Cir. 2002), an
environmental group filed a Freedom of Information Act (FOIA) request seeking information about
a rare bird that it believed qualified as an endangered species. The U.S. Forest Service refused to
disclose the information, and the group filed suit. While the case was pending in the district court,
Congress passed a new statute exempting the type of information sought by the group from FOIA.
Id. The district court applied the new exemption and denied the group’s FOIA request.
On appeal, the Ninth Circuit affirmed, rejecting the environmental group’s argument that
applying the new statute was impermissibly retroactive because the group “had a right to the
information when it filed its suit (or when it made its earlier request) and it loses that right by
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application of the new exemption.” Id. at 1062. The court reasoned that the group’s filing a FOIA
request was not the type of “action in reliance on prior law that qualifies under Landgraf,” and that
applying the current law would “further[] Congress’s intent to protect information regarding
threatened or rare resources of the National Parks.” Id. In a footnote, the court returned to the
concern expressed in the Landgraf footnote quoted above. The Ninth Circuit opined that the group’s
“expectation of success in its litigation is not the kind of settled expectation protected by Landgraf’s
presumption against retroactivity.” Id. at 1062 n.1. Were that so, the court concluded, “no statute
would ever apply to a pending case unless Congress expressly made it applicable,” and “[t]he
Landgraf inquiry would become pointless.” Id.
Similarly, in the present case, Southeast filed a request for a benefit that it felt entitled to
under the governing law. But an intervening change in the law deprived Southeast of its anticipated
benefit by the time that the PSC got around to approving Southeast’s request. Just as the FOIA
request in Southwest Center for Biological Diversity did not constitute the exercise of a vested right
because the Center’s right to the information that it sought did not attach until the federal court
ordered disclosure, Southeast’s opt-in request was not the exercise of a vested right because its opt-
in application did not mature until the PSC gave its approval. Any belief that Southeast may have
had that it would prevail before the PSC “is not the kind of settled expectation protected by . . . [the]
presumption against retroactivity.” Id. As the Ninth Circuit explained, “if that expectation were
sufficient then no [new] statute would ever apply to a pending case.” Id. Finally, just as applying
the new FOIA exemption “further[ed]” congressional intent, applying the current all-or-nothing rule
honors the FCC’s goal of giving the new rule a broad and immediate effect. See Second Report and
Order, 19 FCC Rcd. at 13501 ¶ 10.
This court’s recent decision in Combs v. Commissioner of Social Security, No. 04-5275, - -
F.3d - - (6th Cir. August 16, 2006) (en banc), which was decided after we heard oral argument,
further supports our resolution of the present case. The issue in Combs was whether the Social
Security Administration (SSA) impermissibly adjudicated plaintiff’s application for disability
benefits under criteria that changed while her case was pending before the agency. Slip. Op. at 2.
Specifically, the SSA eliminated a regulation that mandated a conclusive finding of disability for
applicants who qualified as obese under that regulation. Id. at 3. The SSA refused to apply the old
regulation to Combs’s case, even though she had submitted her application almost three years before
the old regulation was eliminated.
Although there was no majority opinion in Combs, a majority of the en banc court held that
refusing to adjudicate Combs’s pending application pursuant to the old regulation did not have an
impermissible retroactive effect. See id. at 6 (plurality opinion) (concluding that the rule change was
procedural in nature and that applying the new rule was permissible because “procedural rules
regulate secondary as opposed to primary conduct”); id. at 13 (Gilman, J., concurring in the
judgment) (concluding that the rule change was substantive in nature, but that there was no
impermissible retroactive effect because applying the new regime did not impair a vested right or
attach new legal consequences to past conduct). The opinion concurring in the judgment, which
provided the necessary eighth vote for affirming the judgment of the district court, relied explicitly
upon the First Circuit’s decision Pine Tree Medical Associates in concluding that the claimant “had
no settled expectation—let alone a vested right—in the use of the ‘substantive regulations in force’
when she filed her disability claim.” Id. at 13 (citing Pine Tree Medical Assocs., 127 F.3d at 122).
We believe that the same result follows in the present case. Indeed, we find Southeast’s
retroactivity argument even less convincing than that of the plaintiff in Combs, another case in
which a private party submitted an application to a government agency. Southeast simply did not
have a settled expectation, “let alone a vested right,” that the pick-and-choose rule would govern its
opt-in request pursuant to 47 U.S.C. § 252(i). See id. If the elimination of a regulation that had
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unquestionably governed Combs’s case for almost three years before the SSA did not impair her
vested rights, then we fail to see how applying the all-or-nothing rule to Southeast’s two-month-old
opt-in request would impair a vested right or otherwise upset its settled expectations.
Southeast counters by comparing the present case to the Supreme Court’s decision in INS
v. St. Cyr, 533 U.S. 289 (2000). In St. Cyr, a lawful permanent resident (LPR) pled guilty to an
aggravated felony, thus making him subject to deportation. At that time, however, the immigration
laws contained a discretionary waiver provision that gave him the opportunity to avoid deportation.
Intervening federal legislation repealed the waiver provision. The question before the Court was
whether denying St. Cyr the ability to seek the discretionary waiver constituted an impermissibly
retroactive application of the new law. Answering that question in the affirmative, the Court
reasoned that the new legislation converted possible deportation into certain deportation, id. at 325,
and in doing so “attache[d] a new disability, in respect to transactions or considerations already
past.” Id. at 321. The Court explained that St. Cyr’s plea agreement constituted a quid pro quo in
which he sacrificed constitutional rights for the “perceived benefit” of retaining the opportunity to
seek discretionary relief. Id. at 321-22.
To start with, a comparison to St. Cyr is unpersuasive because the reach of that case has been
limited by both this court and the Supreme Court. This court “has limited the application of St. Cyr
to aliens who pl[ed] guilty to removable offenses prior to the enactment of [the intervening
legislation] regardless of when the removable offenses occurred.” Patel v. Gonzales, 432 F.3d 685,
691 (6th Cir. 2005) (citing Garcia-Echaverria v. United States, 376 F.3d 507, 516 (6th Cir. 2004)).
Furthermore, the Supreme Court reaffirmed during its most recent term that St. Cyr is best read as
resting on the LPR’s sacrifice of his constitutional rights in reliance on the availability of other
forms of relief and on the fact that applying the new legislation would effectively have eliminated
the underlying basis for the plea agreement signed by the parties. See Fernandez-Vargas v.
Gonzales, 548 U.S. ___, 126 S. Ct. 2422, 2431-32 (2006).
In the present case, in contrast, the only action that Southeast took in reliance on the pick-
and-choose rule was the filing of the adoption request at issue here. There is no indication in the
record that Southeast signed its agreement with BellSouth with the understanding that it would retain
indefinitely the opt-in power conferred by the pick-and-choose rule. Indeed, the relevant paragraph
in the parties’ contract that governs the potential adoption of future agreements tracks the language
of the statute, not that of the regulation. This is significant because the language of the statute itself,
as explained above, does not indicate whether an ILEC’s duty to provide the enumerated items is
on a service-by-service or an all-or-nothing basis. Moreover, unlike in St. Cyr, Southeast did not
give up or sacrifice anything in reliance on the FCC rule then in place. Applying the current law to
Southeast’s application, in other words, would not upset the basis of any quid pro quo that Southeast
had previously entered into.
Southeast further cites the famous case of Marbury v. Madison, 5 U.S. (1 Cranch) 137
(1803), in support of its vested-rights argument. Most well-known for its discussion of judicial
review, the case also addressed whether Marbury was entitled to the relief that he sought and, as part
of that inquiry, whether the right that he sought to vindicate was vested. The Supreme Court held
that Marbury’s right to his commission vested when the President signed it because the only step
remaining was the nondiscretionary, ministerial act of having the Secretary of State place a seal on
the commission. Id. at 158-59.
As BellSouth argues, there is a fundamental distinction between Marbury and the present
case. Whereas the Secretary of State in Marbury had no choice—i.e., no discretion—but to place
the seal on a commission that already bore the President’s signature, the PSC’s consideration of
Southeast’s adoption request was not purely ministerial. Southeast has not pointed to any section
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of the Act that would require state commissions to approve as a matter of course all adoption
requests submitted pursuant to § 252(i) or the relevant FCC regulation. To the contrary, the four
express limitations on the opt-in right obliged state commissions to devise procedures for addressing
challenges to adoption requests. The state commissions of course retained “discretion” both in
devising these procedures and in adjudicating the merits of the disputes. This is the precise opposite
of the nondiscretionary, ministerial act of confirming the validity of a presidential appointment by
placing a seal on a document. Southeast’s reliance on Marbury is therefore misplaced.
2. Other retroactivity arguments
Although the vested-rights claim is Southeast’s central defense of the judgment below, it also
argues that applying the all-or-nothing rule to its request would subject it to new liabilities. See
Landgraf, 511 U.S. at 280 (noting that applying an intervening law may be impermissibly retroactive
if it “increase[s] a party’s liability for past conduct”). We are not persuaded. As BellSouth
convincingly points out, Southeast is not arguing that application of the all-or-nothing rule itself
increases Southeast’s liabilities, but that certain actions that Southeast has taken since the PSC’s
decision could subject Southeast to liability that would not attach if the PSC’s decision is upheld.
This argument is easily distinguishable from a typical “liability” case like Landgraf, where the legal
change at issue was the imposition of two wholly new forms of liability—compensatory and punitive
damages—for past violations of federal civil rights laws. See 511 U.S. at 281-82.
Three other arguments raised in the course of these proceedings—two by the PSC and one
by BellSouth—merit brief comment. The first is the policy argument used by the PSC as one
justification for refusing to apply the all-or-nothing rule to Southeast’s opt-in request. Specifically,
the PSC expressed concern that applying the new rule to pending cases would prompt ILECs to
“delay proceedings when matters are pending” in order to benefit from changes in the law. This
concern, even if well founded, is more than offset by the adverse policy consequences that follow
from such a ruling. If filing an adoption request guaranteed consideration of the CLEC’s request
under the law in effect at the time of applying, then a CLEC could have assured that the pick-and-
choose rule would apply to any request that it was then contemplating simply by filing the request
prior to the effective date of the new regulation. As a consequence, the life of the pick-and-choose
rule would have been extended well into the future, a result directly contrary to the intentions of the
FCC. See Second Report and Order, 19 FCC Rcd. at 13501 ¶ 10.
The PSC’s other argument is that applying the all-or-nothing rule would have been improper
because, “[b]ut for BellSouth’s objection,” Southeast’s request would have been approved “when
the notice was filed.” This argument, however, lacks a factual basis. Southeast filed its request on
June 8, 2004, and BellSouth did not lodge its objections until June 22, 2004. Yet the request was
not processed in the interim, meaning that BellSouth’s objection was obviously not a factor in
Southeast’s request not being approved “when the notice was filed.”
Furthermore, BellSouth’s decision to object was not, as the PSC says, “extraordinary” in the
legal sense. Although nothing in the record indicates the frequency with which ILECs objected to
opt-in requests under the old rule, availing oneself of an express legal right to interpose an objection
is hardly something that courts view as “extraordinary.” What makes BellSouth’s objection
different, counsel for the PSC maintained at oral argument, is that it did not fit under any of the
grounds for objecting expressly enumerated in the pick-and-choose rule or the FCC’s First Report
and Order. True enough. But the basis for BellSouth’s objection was even more fundamental—that
the dispute-resolution provision was not available for adoption under the plain language of the pick-
and-choose rule because the provision was not an individual interconnection, network element, or
service arrangement. See 47 C.F.R. § 51.809(a) (1997). The PSC recognized that BellSouth’s
argument was a straightforward textual one when it adjudicated the adoption request in September
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of 2004. Indeed, although now claiming that BellSouth objected on a ground not permitted by the
FCC regulation, the PSC did not dismiss the objection as improper, but instead overruled it on the
merits.
Finally, the PSC’s argument strikes us as overbroad in that it relies on circumstances present
virtually any time that the law changes during the course of an adjudicative or decisionmaking
process. “But for” some delay by a party or some ruling by a decisionmaker, the process would have
concluded before the law changed. As we noted above, the fact that a party would have fared better
under prior law, standing alone, does not mean that subjecting that party to the current law is
impermissible. We therefore find the PSC’s “but for” argument unpersuasive.
Finally, we turn to BellSouth’s alternative argument for reversal. BellSouth argued before
the district court and this court that Southeast’s opt-in request should have been denied even under
the plain language of the pick-and-choose rule. Our conclusion that the PSC erred in not applying
the all-or-nothing rule, however, obviates the need to address this alternative argument.
Accordingly, we express no opinion on the soundness of the district court’s analysis regarding
BellSouth’s objection to the application of the pick-and-choose rule in the case before us.
III. CONCLUSION
For all of the reasons set forth above, we hold that applying the all-or-nothing rule to
Southeast’s pending adoption request would not have had an impermissible retroactive effect. We
therefore REVERSE the judgment of the district court and REMAND the case with instructions
to vacate the order of the PSC.