Verizon can sue Md. PSC in U.S. court

Big phone companies cheer justices' 8-0 ruling

O'Connor recuses herself

Reversal disappoints state commission

May 21, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

The U.S. Supreme Court upheld yesterday the right of Verizon Communications Inc. to sue the Maryland Public Service Commission in federal court - a ruling cheered by the nation's large phone companies, even though the result might end up costing some of them millions of dollars in Maryland.

In its second ruling in eight days on the reform of the phone industry, the court ruled by an 8-0 vote that state commissions that oversee phone service and other utilities are not protected from being sued in federal court under the 1996 Telecommunications Act.

The verdict reversed earlier wins by the Maryland commission in U.S. District Court in Baltimore and in the 4th Circuit of the Court of Appeals.

Those courts had said that under the 11th Amendment to the U.S. Constitution Maryland's commissioners had immunity from being sued in federal court. That was in contrast with many rulings in similar cases involving phone companies across the country.

"The commission is disappointed with the outcome announced by the court today," said Chrys Wilson, a spokeswoman for the PSC.

Yesterday's verdict has the potential to cost the companies that lease Verizon's phone network in Maryland tens of millions of dollars.

And yet as befits the complexity and confusion in the $100 billion phone industry today, the very companies that may end up having to pay Verizon were its allies before the high court.

In 1999, Verizon's predecessor, Bell Atlantic, challenged a decision by Maryland regulators in favor of WorldCom Inc.

It is common for phone companies to pay one another for handling pieces of a call from start to finish, depending on whose customer places the call and who receives it.

But Verizon argued that it didn't have to pay WorldCom when people called a WorldCom number to hook up to the Internet. Verizon maintained that such calls often ended at distant Web sites and shouldn't qualify as local calls requiring compensation under its agreement with WorldCom.

The Maryland commission sided with WorldCom. When Verizon sued the quasi-judicial regulatory panel, commission attorneys argued that the regulators had constitutional immunity as agents of the state carrying out federal law. The argument carried through the federal courts - until the Supreme Court ruling yesterday.

Verizon said it now intends to return to U.S. District Court in Baltimore to remake its case that it doesn't owe competitors for calls to Internet service providers. Should Verizon prevail, WorldCom and others might eventually have to repay the millions Verizon has paid them for such calls since 1999.

Yet WorldCom, AT&T Corp. and others supported Verizon in its Supreme Court challenge. They didn't want to lose the ability to appeal a state decision to federal court, they said.

"The telephone companies see value in having the federal courts resolve these disputes, so even though Verizon and WorldCom were in disagreement on the underlying case, we both wanted the federal court to hear it," said Michael Lowe, a vice president and associate general counsel for New York-based Verizon.

Timothy Guillen, a WorldCom spokesman, said the Clinton, Miss.-based company believes that it will prevail if Verizon pursues its challenge on payments for Internet calls. In fact, various states are split on whether calls to a dial-up computer modem qualify as local or long-distance.

Justice Sandra Day O'Connor did not participate or rule in the case because her family owns stock in phone companies, including WorldCom.

Yesterday's decision, and one last week involving the formula for leasing phone networks, were among the few that have reached the high court involving the telecommunications law that Congress approved in 1996.

"This is a nuts-and-bolts case dealing with a very fundamental issue," said Deborah Nathan, an editor with Telecommunications Industry Litigation Reporter, a trade newsletter based outside Philadelphia. "One of the key aspects of the telecom act are these interconnection agreements. My sense, though, is that this would have been even more dramatic had the court ruled that these suits could not be heard."

When the U.S. Court of Appeals for the 4th Circuit in Richmond, Va. opined in Maryland's favor, it created a stir in the industry because rulings in several other appeals circuits held the opposite: that state commissions were not protected from legal challenges in federal court as they carried out the telecommunications act.

When the Supreme Court agreed to hear the case, the Bush administration sided with Verizon, arguing that the decision held major implications for industry and for reform of the phone system.

Congress six years ago decided that the companies formed from the split of the Bell System monopoly in 1984 had to lease their networks to competitors to force greater competition.

Maryland's argument that the federal law wasn't clear and implied immunity for the PSC fell on unsympathetic ears before the court last December.

"If they intended a hodgepodge," Justice David H. Souter said, referring to Congress, "I would say `God bless the hodgepodge.'"

Yesterday, Justice Antonin Scalia, writing for the court, said the act's omission of detail on immunity doesn't mean that it automatically is conferred.

"We will not presume that the statute means what it neither says nor fairly implies," he wrote.

The Supreme Court simultaneously heard a similar lawsuit involving Illinois, but dismissed it and ruled only on the Maryland case.

"This comes up all the time because the Telecommunications Act puts in this scheme of dual jurisdiction" between state and federal regulators, said Martin L. Stern, a Washington attorney and former counsel for the Federal Communications Commission.

"Many of these carriers at one time or another have sought review of a state commission decision, and this makes it clear that there is an avenue of review in the federal courts. It just removes one more piece of uncertainty."

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