MCI TELECOMMUNICATION CORPORATION, a Delaware Corporation; Mcimetro Access Transmission Services, Inc., a Delaware Corporation; AT & T Communication of Pennsylvania; United States of America (Intervenors-Plaintiffs in District Court), v. BELL ATLANTIC–PENNSYLVANIA; Pennsylvania Public Utility Commission; John M. Quain; Robert K. Bloom; John Hanger; David W. Rolka; Nora M. Brownell, in their official capacities as Commissioners of the Pennsylvania Public Utility Commission Pennsylvania Public Utility Commission; John M. Quain; Robert K. Bloom; John Hanger; David W. Rolka; Nora Mead Brownell, in their official capacities as Commissioners of the Pennsylvania Public Utility Commission, Appellants, Bell Atlantic-Pennsylvania, Inc., Appellant.
Nos. 00-2257, 00-2258.
United States Court of Appeals, Third Circuit.
Argued June 21, 2001. Filed Nov. 2, 2001.
271 F.3d 491
David M. Levy (Argued), Stephen B. Kinnaird, Michael L. Post, Sidley & Aus-
David M. Barasch, United States Attorney, Stuart E. Schiffer, Acting Assistant Attorney General, Mark B. Stern, Charles W. Scarborough, Kathleen A. Kane, United States Department of Justice Civil Division, Appellate Staff, Washington, DC, Attorneys for Appellee United States of America.
Thomas B. Schmidt, III, Donna L. Fisher, Kelly Ann Ryan, Pepper Hamilton LLP, Harrisburgh, PA, Julia A. Conover, Suzan DeBusk Paiva (Argued), Verizon Pennsylvania Inc., Philadelphia, PA, Attorneys for Appellant Bell Atlantic-Pennsylvania, Inc.
Bohdan R. Pankiw, Chief Counsel, Robert J. Longwell, Deputy Chief Counsel, Maryanne R. Martin (Argued), Assistant Counsel, Pennsylvania Public Utility Commission, Harrisburg, PA, Attorneys for Appellants Pennsylvania Public Utility Commission, John M. Quain, Robert K. Bloom, John Hanger, David W. Rolka, Nora Mead Brownell, in their official capacities as Commissioners of the Pennsylvania Public Utility Commission.
Counsel on Sovereign Immunity, Issues Exclusively, Albert G. Bixler (Argued for Appellants).
Susan D. Paiva (Argued for Appellees).
Before ROTH, AMBRO and FUENTES, Circuit Judges.
OPINION OF THE COURT
ROTH, Circuit Judge.
In passing the Telecommunications Act of 1996, Congress altered the regulatory scheme for local telephone service. The Act requires that local service, which was previously operated as a monopoly overseen by the several states, be opened to competition according to standards established by federal law. Under the Act, the incumbent local telephone service carriers must negotiate or arbitrate agreements with competitive local carriers, allowing entering carriers either to connect their equipment to the existing network or to purchase or lease elements and services of the existing network. The terms, rates, and conditions of such arrangements are set forth in interconnection agreements established between the carriers. The state utility commissions are empowered, but not required, to review and give final approval to interconnection agreements to ensure that they comport with federal law.
Verizon Pennsylvania, Inc. (Verizon—known at that time as Bell Atlantic-Pennsylvania, Inc.), the incumbent local carrier in Pennsylvania, entered into negotiations with MCI/Worldcom (Worldcom), a competing carrier which sought to provide local telephone service. After various negotiations and arbitrations by the Pennsylvania Public Utility Commission (PUC), the parties established an interconnection agreement and submitted it to the PUC which approved it contingent on certain revisions and the incorporation of certain rates. Worldcom then brought suit in federal court against Verizon, the PUC, and the PUC Commissioners, under
The District Court had jurisdiction to review the interconnection agreement pursuant to
For the reasons that follow, we conclude that the PUC and the Commissioners are not entitled to Eleventh Amendment immunity from suit in federal court under the 1996 Act. We will, therefore, affirm the decision of the District Court on this issue. On the questions, raised by Verizon and the PUC regarding the terms of the interconnection agreement, we will affirm the District Court in part and reverse it in part.
I. Statutory Background
Prior to 1996, local telephone service operated as a monopoly, subject to exclusive regulation by the several states. In each local service area, the states would grant a monopoly franchise to one local exchange carrier, which owned the facilities and equipment necessary to provide telephone service. See AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 370, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) (Iowa Utils. I). With the Telecommunications Act of 1996, Congress fundamentally restructured local telephone markets by eliminating state-granted local service monopolies. See id. The Act preempts exclusive state regulation of local monopolies in favor of the competitive scheme established in
The Act essentially requires incumbent local exchange carriers (ILECs) to share their networks and services with competitors seeking entry into the local service market. See MCI Telecomm. Corp. v. Illinois Bell Tel. Co., 222 F.3d 323, 328 (7th Cir.2000), cert. denied, 531 U.S. 1132, 121 S.Ct. 896, 148 L.Ed.2d 802 (2001). Under the Act, a new entrant to the local telephone market, known as a competitive local exchange carrier (CLEC), is able to compete with an ILEC without having to bear the prohibitive cost of building its own telecommunications network. See id. Both an ILEC and a CLEC are required to “negotiate in good faith” the “terms and conditions of agreements” which will permit the CLEC, as well as other providers, to share the network and to provide service.
Section 251 and FCC regulations establish three methods of providing a CLEC access to a local network. See Iowa Utils. I, 525 U.S. at 370, 119 S.Ct. 721; GTE South, Inc. v. Morrison, 199 F.3d 733, 737 (4th Cir.1999). First, a CLEC may build its own network and “interconnect” with the incumbent network.
Second, a CLEC may lease individual elements of the existing network on an “unbundled basis” at “any technically feasible point” on “rates, terms, and conditions that are just, reasonable, and nondiscriminatory.”
Lease rates for network elements must be based on forward-looking costs, meaning the sum of the “total element long-run incremental cost of the element,” plus a reasonable allocation of “forward-looking common costs.”
Third, a CLEC may purchase from the ILEC for resale “at wholesale rates any telecommunications service the carrier provides at retail to subscribers who are not telecommunications carriers.”
The FCC established a wholesale pricing standard for § 251(c)(4), equal to “the rate for the telecommunications service, less avoided retail costs.”
In addition, in gaining access to a local network, a CLEC must be permitted to physically collocate on the ILEC‘s premises any equipment necessary for interconnection or for access to unbundled network elements, on rates, terms, and conditions that are just, reasonable, and nondiscrimi-
Section 252 sets out the process by which interconnection agreements between ILECs and CLECs are to be established. See MCI, 222 F.3d at 328; GTE South, 199 F.3d at 737. An incumbent and a requesting carrier may “negotiate and enter into a binding agreement.”
Negotiations may, however, prove unsuccessful. Cf. GTE South, 199 F.3d at 737 (stating that it is hard to see how negotiations would not fail). Either party, during the period from 135 to 160 days after a CLEC‘s request for interconnection, may petition a state utility commission to arbitrate any unresolved issues.
Any interconnection agreement, whether reached through negotiation or arbitration, must be submitted to the state utility commission, which “shall approve or reject the agreement, with written findings as to any deficiencies.”
If a state utility commission “fails to act” to carry out any of its responsibilities under § 252, the FCC is to assume responsibility and act in place of the state commission in carrying out these duties.
When a state utility commission has approved or rejected an agreement under § 252(e)(1), “any party aggrieved by such determination may bring an action in an appropriate Federal district court to determine whether the agreement or statement meets the requirements” of §§ 251 and 252.
II. Litigation Background
Worldcom requested interconnection and began negotiations with incumbent carrier Verizon for an agreement to permit Worldcom to provide local service in Pennsylvania. Certain issues were not resolved by negotiation. The parties then went to arbitration before the PUC, which issued orders resolving those issues and requiring the arbitrated terms to be incorporated into the final agreement. After continued negotiations and additional rulings from the PUC, the parties reached a final agreement and submitted it to the PUC, which approved it contingent on certain revisions and the incorporation of certain rates.
Worldcom then brought suit under
The PUC and the Commissioners moved to dismiss the action on Eleventh Amendment grounds, arguing that they had sovereign immunity from suit in federal court under the Act and that
Because there were no disputed issues of fact, the parties then cross-moved for summary judgment. The Magistrate Judge made a Report and Recommendation, which the District Court adopted in part and rejected in part. The District Court considered and resolved five issues that now are on appeal before this Court.
The first issue concerns interconnection in Local Access and Transport Areas (LATAs). The PUC had required that Worldcom interconnect in each access tandem serving area, rather than at a single point within each LATA. An access tandem serving area is a geographic area containing several local switches that subtend a single access tandem switch. Each LATA contains at least one access tandem area, but some LATAs in Pennsylvania contain more than one. The PUC‘s order required Worldcom to interconnect at each tandem switch, even if it already had connected at another point within that LATA. The District Court vacated that term of the interconnection agreement as contrary to the Act.
Second, the PUC had required Verizon to permit Worldcom to collocate remote switching modules (RSMs) in Verizon‘s central offices. RSMs are devices used for interconnection. An RSM also contains switches with the limited capability of so-called line-to-line switching, switching calls between two customers, each of whom is served by unbundled loops. An RSM can be used to access unbundled loops and to interconnect to them, but it can also switch calls between Worldcom customers. In other words, RSMs are a single piece of equipment that enables the CLEC to perform several functions, including both interconnection and switching. Verizon contended that an RSM was not “necessary” for interconnection and that Verizon could not be required to permit collocation of such equipment. The Magistrate Judge and District Court rejected this argument and affirmed that portion of the interconnection agreement.
Third, the PUC had required Verizon to sell directory publishing services at wholesale rates as a telecommunications service. Directory publishing services include basic listings with customer telephone numbers, as well as additional services such as vanity numbers, bold and foreign listings in the White Pages, and non-listing and non-publication of customers’ telephone numbers. Verizon argued that directory publishing services were not telecommunications services under the Act. The Magistrate Judge rejected this argument, but the District Court accepted it and struck down this provision of the agreement.
Fourth, the PUC had established wholesale rates to be charged to Worldcom for resale of telecommunications services. Verizon objected to the rates, but the District Court rejected Verizon‘s argument and affirmed the PUC-approved rates contained in the agreement.
Fifth, the PUC had established the prices to be charged for unbundled network elements, using what it called TSLRIC, or total service long-run incremental cost, methodology. Worldcom argued that the PUC had not used the required forward-looking TELRIC methodology established by the FCC. The District Court agreed and remanded to the PUC for it to establish new rates using the proper TELRIC methodology.
The PUC and Verizon both timely appealed the decisions of the District Court; the appeals were consolidated.
III. Sovereign Immunity
We first address the PUC‘s and Commissioners’ appeal of the District
A. Background to the Eleventh Amendment
We begin with an overview of Eleventh Amendment jurisprudence: That amendment has been interpreted to make states generally immune from suit by private parties in federal court. See Board of Tr. of Univ. of Alabama v. Garrett, 531 U.S. 356, 121 S.Ct. 955, 962, 148 L.Ed.2d 866 (2001); College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 669-70, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999); Idaho v. Coeur d‘Alene Tribe of Idaho, 521 U.S. 261, 267, 117 S.Ct. 2028, 138 L.Ed.2d 438 (1997); Seminole Tribe of Florida v. Florida, 517 U.S. 44, 54, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996); Lavia, 224 F.3d at 195. This immunity extends to state agencies and departments. See C.H., ex rel. Z.H. v. Oliva, 226 F.3d 198, 201 (3d Cir.2000) (en banc).
Eleventh Amendment immunity is subject to three exceptions: 1) congressional abrogation, 2) state waiver, and 3) suits against individual state officers for prospective relief to end an ongoing violation of federal law.
First, Congress may, in some limited circumstances, abrogate sovereign immunity and authorize suits against states. If a statute has been passed pursuant to congressional power under § 5 of the Fourteenth Amendment to enforce the provisions of that amendment, Congress can abrogate a state‘s sovereign immunity. See Garrett, 121 S.Ct. at 962; College Savings, 527 U.S. at 670, 119 S.Ct. 2219;
Second, a state may waive sovereign immunity by consenting to suit. See College Savings, 527 U.S. at 670, 119 S.Ct. 2219 (citing Clark v. Barnard, 108 U.S. 436, 447-48, 2 S.Ct. 878, 27 L.Ed. 780 (1883)). The waiver by the state must be voluntary and our test for determining voluntariness is a stringent one. See College Savings, 527 U.S. at 675, 119 S.Ct. 2219
The difficult question we now face is how do we infer waiver from a state‘s actions. To answer this question, we must turn to the Supreme Court‘s recent decision in College Savings. There, the Court held that a suit against a state agency under the Trademark Remedy Clarification Act, alleging that the state agency had made false and misleading advertising statements, was barred by the Eleventh Amendment. See College Savings, 527 U.S. at 691, 119 S.Ct. 2219. The Court held that the state‘s sovereign immunity was not validly abrogated by the Act and not voluntarily waived by the state‘s mere participation in an activity in interstate commerce, such as providing student loan services and advertising those services. See id.
The Court, in rejecting waiver of Eleventh Amendment immunity in College Savings, overturned the constructive waiver doctrine formerly established in Parden v. Terminal R. of Alabama State Docks Dept., 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1964). See College Savings, 527 U.S. at 680, 119 S.Ct. 2219 (“Whatever may remain of our decision in Parden is expressly overruled.“); id. (“We think that the constructive-waiver experiment of Parden was ill conceived, and see no merit in attempting to salvage any remnant of it.“). Parden involved the operation by a state of a railroad in interstate commerce. In Parden, the Court had held that, if the state had notice when it entered a field which was subject to congressional oversight or regulation that it would be subject to suit in federal court, then the state was deemed to have waived immunity and consented to suit. Parden, 377 U.S. at 192, 84 S.Ct. 1207 (concluding that state, when it began operation of a railroad in interstate commerce, 20 years after the enactment of the Federal Employers’ Liability Act, necessarily consented to such suit as was authorized by the Act).
Since College Savings, a state‘s mere participation in a federally regulated activity no longer may be understood as a constructive waiver of state sovereign immunity and consent to suit in federal court. Congress no longer may statutorily coerce a state into relinquishing its sovereign immunity on threat of the state being excluded from participating in an otherwise lawful and permissible activity. See College Savings, 527 U.S. at 687, 119 S.Ct. 2219; see also id. at 683, 119 S.Ct. 2219 (“Recognizing a congressional power to exact constructive waivers of sovereign immunity through the exercise of Article I powers would also, as a practical matter, permit Congress to circumvent the antiabrogation holding of Seminole Tribe.“).
But the College Savings Court distinguished and left intact conditional types of constructive waiver as previously established in two cases. In Petty v. Tennessee-Missouri Bridge Comm‘n, 359 U.S. 275, 277-78, 79 S.Ct. 785, 3 L.Ed.2d 804 (1959), two states entered into an interstate compact, approved by Congress, that contained a sue-or-be-sued clause. The
The College Savings Court described these cases as “fundamentally different” from Parden-type forced constructive waivers because both the grant of consent to form an interstate compact and the disbursement of federal monies are congressionally bestowed gifts or gratuities, which Congress is under no obligation to make, which a state is not otherwise entitled to receive, and to which Congress can attach whatever conditions it chooses. See College Savings, 527 U.S. at 686-87, 119 S.Ct. 2219. A waiver in return for receiving a benefit which a state could not otherwise enjoy is very different from a situation, such as in College Savings or Parden, where a state‘s refusal to consent to the condition of being sued would result in a congressionally imposed sanction, i.e., the exclusion of the state from activities in which it otherwise was legally permitted to engage.
A fair reading of College Savings suggests that Congress may, pursuant to its regulatory power under the Commerce Clause, require a state to waive immunity in order to engage in an activity in which the state may not engage absent congressional approval, or in order to receive a benefit to which the state is not entitled absent a grant or gift from Congress. Four of our sister circuits have adopted this understanding of College Savings, recognizing that “gift” or “gratuity” waivers are permissible under a law passed pursuant to Article I powers, provided that Congress made its intent to require a waiver of immunity clear and unambiguous. See Bell Atl. Md., Inc. v. MCI Worldcom, Inc., 240 F.3d 279, 292 (4th Cir.) (recognizing congressional power to impose gift waiver, so long as its intent to do so is clear), cert. granted in part, 533 U.S. 928, 121 S.Ct. 2548, 150 L.Ed.2d 715 (2001); BellSouth, supra, 238 F.3d at 645 (“[A]fter College Savings, Congress may still obtain a non-verbal voluntary waiver of a state‘s Eleventh Amendment immunity if the waiver can be inferred from the state‘s conduct in accepting a gratuity after being given clear and unambiguous statutory notice that it was conditioned on waiver of immunity.“); MCI, supra, 222 F.3d at 339-40 (holding that College Savings set boundaries on congressional attempts to obtain waivers from states but that it endorsed certain types of waivers, such as in Dole and Petty); id. at 344 (“We believe that College Savings does not alter the principle that states may waive their immunity by accepting a benefit from Congress that has conditions attached to that acceptance.“); MCI Telecomm. Corp. v. Public Serv. Comm‘n of Utah, 216 F.3d 929, 937 (10th Cir.2000) (Public Serv. Comm‘n of Utah) (reading College Savings as permitting constructive waivers that are voluntary, meaning waivers given in order to obtain a gift or gratuity that would be denied if the state refuses to consent to suit in federal court), cert. denied, 531 U.S. 1183, 121 S.Ct. 1167, 148 L.Ed.2d 1026 (2001).
Congress must be unmistakably clear and unambiguous in stating its intent to condition receipt of the gratuity on the state‘s consent to waive its sovereign immunity and to be sued in federal court. See Atascadero State Hosp., 473 U.S. at 247, 105 S.Ct. 3142. This requirement that Congress speak with a “clear voice” ensures that the states exercise their choice knowingly and voluntarily, cognizant of the consequence (waiver of constitutional immunity) of participating in the permitted activity. See Pennhurst State Sch. and Hosp. v. Halderman, 451 U.S. 1, 17, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981) (Pennhurst I).
The third exception to the Eleventh Amendment is the doctrine of Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908), under which individual state officers can be sued in their individual capacities for prospective injunctive and declaratory relief to end continuing or ongoing violations of federal law. In Young, the Supreme Court held that the Eleventh Amendment did not prohibit a federal court from enjoining a state attorney general from enforcing an unconstitutional state law. The theory behind Young is that a suit to halt the enforcement of a state law in conflict with the federal constitution is an action against the individual officer charged with that enforcement and ceases to be an action against the state to which sovereign immunity extends; the officer is stripped of his official or representative character and becomes subject to the consequences of his individual conduct. See Young, 209 U.S. at 159-60, 28 S.Ct. 441; see also Pennhurst State Sch. and Hosp. v. Halderman, 465 U.S. 89, 103, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984) (Pennhurst II) (stating that, under the theory of Young, an action for prospective relief against the state officer was not an action against the state because the allegation of a violation of federal law would strip the officer of his official authority). The relief sought must be prospective, declaratory, or injunctive relief governing an officer‘s future conduct and cannot be retrospective, such as money damages. See Pennhurst II, 465 U.S. at 102-03, 104 S.Ct. 900.
The Young doctrine is accepted as necessary to permit federal courts to vindicate federal rights and to hold state officials responsible to the “supreme authority of the United States.” See id. at 105, 104 S.Ct. 900. The doctrine applies both to violations of the United States Constitution and to violations of federal statutes. See Balgowan v. New Jersey, 115 F.3d 214, 218 (3d Cir.1997) (holding that suit for declaratory relief against state officer under Fair Labor Standards Act is permissible under Young); see also Allegheny County Sanitary Auth. v. U.S.E.P.A., 732 F.2d 1167, 1174 (3d Cir.1984). However, Young does not apply if, although the action is nominally against individual officers, the state is the real, substantial party in interest and the suit in fact is against the state. See Pennhurst II, 465 U.S. at 101, 104 S.Ct. 900.
Some confusion has arisen as to the scope and application of Young as a result of the Supreme Court‘s recent decision in Coeur d‘Alene. There, an Indian tribe brought suit against Idaho state officers arguing that, under federal law, the Tribe should hold title to the banks, bed, and submerged lands of Lake Coeur d‘Alene and the various navigable rivers and streams forming part of its waterway. See Coeur d‘Alene, 521 U.S. at 264, 117 S.Ct. 2028. A five-Justice majority concluded that Young did not permit the action because the Tribe‘s suit, although brought against individual officers for prospective relief from an ongoing violation of federal law, was the functional equivalent of a quiet title action against the state, which, if
The principal opinion in Coeur d‘Alene, authored by Justice Kennedy, garnered five votes in its determination that the Tribe‘s action was equivalent to a quiet title action against the state itself and was barred by the Eleventh Amendment. Justice Kennedy‘s opinion also suggested, however, that Young is not applicable to every case in which prospective relief is sought against an individual officer from an ongoing violation of federal law. See Coeur d‘Alene, 521 U.S. at 270, 117 S.Ct. 2028 (describing that view as adhering to an “empty formalism” and undermining the real limits imposed by the Eleventh Amendment). Rather, Justice Kennedy suggested that Young applies primarily in two instances: where there is no state forum available to vindicate federal rights, see id., and where the case calls for the interpretation of federal law. See id. at 274, 117 S.Ct. 2028. Justice Kennedy urged that there always be a careful balancing and accommodation of federal and broad state interests when determining whether Young applies, applying a case-by-case balancing approach. See id. at 278, 117 S.Ct. 2028.
The portion of Justice Kennedy‘s opinion adopting this narrowed view of Young was joined only by the Chief Justice. In a separate opinion, Justice O‘Connor, joined by Justices Scalia and Thomas, sharply criticized the replacement of a “straightforward inquiry into whether a complaint alleges an ongoing violation of federal law and seeks relief properly characterized as prospective with a vague balancing test that purports to account for a ‘broad’ range of factors.” Id. at 296, 117 S.Ct. 2028 (O‘Connor, J., concurring in part and concurring in the judgment); see id. at 291, 117 S.Ct. 2028 (criticizing the principal opinion as unnecessarily narrowing Young without warrant); id. at 296-97, 117 S.Ct. 2028 (“I would not narrow our Young doctrine.“); see also id. at 297-98, 117 S.Ct. 2028 (Souter, J., dissenting) (stating that Justice O‘Connor had rejected the call for case-by-case balancing in applying Young and expressing “great satisfaction” that this view is the controlling one).
Justice Kennedy‘s opinion in Coeur d‘Alene cannot be read to establish the controlling standard for Young. Seven Justices rejected such a balancing and agreed that Young generally should apply when an action against a state officer alleges an ongoing violation of federal law and seeks prospective relief. See id. at 296, 117 S.Ct. 2028 (O‘Connor, J., joined by Scalia and Thomas, JJ., concurring in part and concurring in the judgment); id. at 298-99, 117 S.Ct. 2028 (Souter, J., joined by Stevens, Ginsburg, and Breyer, JJ., dissenting). The Fifth Circuit has held that, because a majority of the Supreme Court would adhere to the more traditional application of Young, the Fifth Circuit would also continue to do so. See BellSouth, 238 F.3d at 648-49 (quoting Earles v. State Bd. of Certified Pub. Accountants of Louisiana, 139 F.3d 1033, 1039 (5th Cir.1998)). We agree and similarly hold that Young continues to permit actions against state officers for prospective relief from ongoing violations of federal law; no case-by-case balancing is necessary or proper.
Coeur d‘Alene did carve out one narrow exception to Young: An action cannot be maintained under Young in those unique and special circumstances in which the suit against the state officer affects a unique or essential attribute of state sovereignty, such as that the action must be understood as one against the state. One example of such special, essential, or fundamental sovereignty is a state‘s title, control, possession, and ownership of water and land, which is equivalent to its control over funds of the state treasury. See Coeur d‘Alene, 521 U.S. at 287, 117 S.Ct. 2028; id. at 296-97, 117 S.Ct. 2028 (O‘Connor, J., concurring in part and concurring in the judgment). This exception is best understood as an application of the general rule that Young does not permit actions that, although nominally against state officials, in reality are against the state itself. See Pennhurst II, 465 U.S. at 102, 104 S.Ct. 900.
In addition, the Court in Seminole Tribe has carved out a second exception to Young. Young will not apply where Congress has created a detailed remedial scheme for the enforcement of a federal statutory right against a state. See Seminole Tribe, 517 U.S. at 74, 116 S.Ct. 1114. The statute at issue in Seminole Tribe was the Indian Gaming Regulation Act (IGRA), under which Congress established a limited set of remedies and detailed, elaborate procedures for obtaining those remedies. Pursuant to IGRA, the state was under an obligation to negotiate with a tribe in good faith and if a court found that the tribe had failed to do so, the sole remedy was for a court to order the state and the tribe to conclude a compact within 60 days. See id. If the parties did not complete the compact within that time, the sole sanction was that each party was to present a proposed compact to a mediator, who would choose the compact best embodying federal law. See id. If the state still failed to comply, the tribe was to notify the Secretary of the Interior, who would prescribe regulations. See id. at 74-75, 116 S.Ct. 1114. This limited remedy contrasted with the full panoply of prospective judicial remedies available in an action against individual officers under Young, including contempt sanctions for violation of an injunction. See id. at 75, 116 S.Ct. 1114. Where, as in IGRA, Congress has created such a detailed and limited remedial scheme in the statute itself, a federal court cannot obtain jurisdiction through Young over an action against state officers which seeks a remedy beyond that which Congress itself has made available against the state under federal law.
B. The Eleventh Amendment and § 252(e)(6)
With this overview of the Eleventh Amendment in mind, we turn to the question whether
1. Waiver
We will first consider whether the Telecommunications Act of 1996, by taking control of local telephone companies away from the states and then giving back to them the option of participating in local telecommunications regulation, has established the type of gratuity or gift waiver of Eleventh Amendment immunity that the College Savings Court recognized as permitted under Commerce Clause powers.
We must answer two questions: 1) whether the authority to participate in the regulatory scheme is in fact a gift or gratuity to which Congress may attach as a condition the state‘s agreement to waive sovereign immunity and be sued in federal court and 2) whether Congress in the statute made clear, explicit, and unambiguous its intent that state utility commissions participating in the regulatory process would subject themselves to suit in federal court, so that the states can be said to have knowingly and voluntarily waived sovereign immunity by participating in that process.
(a)
We conclude that under the Act the authority to regulate local telecommunications is a gratuity to which Congress may attach conditions, including a waiver of immunity to suit in federal court. Thus, the submission to suit in federal court, provided for in
We find a gratuity because, with the 1996 Act, Congress federalized the regulation of competition for local telecommunications service. The Act preempted the regulation of interconnection agreements and of the terms on which a CLEC can provide competitive local service. Local telephone service had previously been a
Congress could have made that preemption complete. It could have entirely eliminated any state role in regulating local competition and in conducting arbitration, review and approval of interconnection agreements, and it could have reserved to the FCC all such review and regulation. See BellSouth, 238 F.3d at 646; MCI, 222 F.3d at 342; Bell Atl. Md., 240 F.3d at 316 (King, J., dissenting); see also FERC v. Mississippi, 456 U.S. 742, 764, 102 S.Ct. 2126, 72 L.Ed.2d 532 (1982) (“[T]he commerce power permits Congress to preempt the States entirely in the regulation of private utilities.“). Congress instead preserved a role for state utility commissions in the federal regulatory scheme, giving them back some regulatory power by allowing them the first opportunity to conduct arbitrations and to approve or reject interconnection agreements. See
Because Congress validly terminated the states’ role in regulating local telephone competition and, having done so, then permitted the states to resume a role in that process, the resumption of that role by a state is a congressionally bestowed gratuity. The state commission‘s authority to regulate comes from
Indeed, the “states are not merely acting in an area regulated by Congress; they are now voluntarily regulating on behalf of Congress.” MCI, 222 F.3d at 343; see BellSouth, 238 F.3d at 647 (stating that the state “accepted Congress‘s offer under the 1996 Act to delegate federal authority to the state commission“); Public Serv. Comm‘n, 216 F.3d at 938 (stating that the Act “invites states to participate in the federal government‘s regulation of local telephone service“). Because this opportunity for the states to exercise federal power is a gratuity from Congress, Congress may then attach to that grant of regulatory power any conditions it chooses. The condition which it did attach was the submission to suit in federal court. Thus, when a state accepts that grant of regulatory power, it does so under the condition that it be subject to suit in federal court. See MCI, 222 F.3d at 344 n. 10 (“By accepting the grant of regulatory power offered by Congress, and by allowing the state commission to exercise that power, [the states] cannot contend now that they are not bound by the
conditions attached to that grant of power.“).
The PUC contends, however, that the power to regulate local telephone service is not a congressional gratuity but a primary aspect of core state sovereignty, a power the states have exercised exclusively for decades. This argument ignores the fundamental restructuring of telecommunications markets worked by the 1996 Act, see Iowa Utils. I, 525 U.S. at 370, 119 S.Ct. 721. Through the Act‘s restructuring, the federal government has “unquestionably” taken the regulation of local telecommunications competition away from the states. See id. at 378 n. 6, 119 S.Ct. 721. Whatever the power of the states in the area of local telephone regulation prior to 1996, that power did not survive passage of the Act. State commissions now exercise power over local competition only pursuant to
The fact that the PUC was required under pre-1996 state law to regulate local telephone service and that the pre-1996 law has not been repealed by the Pennsylvania legislature does not mean that the present participation by the PUC in regulation is not voluntary. The relationship between the state and the state utility commission under state law is irrelevant to the Eleventh Amendment analysis. If the state‘s participation in the federal scheme is voluntary, then its delegated commission‘s participation is also voluntary. And, as a result of the federal preemption, resulting from the Act, the decision by a state to regulate competition in the provision of local telecommunications service is a voluntary one. When, therefore, the state directs the state commission to participate in regulation under the Act, the commission‘s participation is also voluntary.
Moreover, a state‘s participation in telecommunications regulation is not mandatory. If a state commission declines or fails to participate in arbitration or review of interconnection agreements, responsibility for regulation falls to the FCC. See
If the Commonwealth of Pennsylvania continues to direct the PUC to perform these regulatory functions, however, this
(b)
Even though we have concluded that the right to participate in the regulation of local telecommunications competition is a gratuity or benefit bestowed on the states by Congress, we must still determine whether Congress was unmistakably explicit, clear, and unambiguous in
In considering whether
Consequently, a state commission that decides to participate in this statutory scheme is on notice from the outset that it will be subject to suit, brought only in federal court, by any party aggrieved by its decision. See MCI, 222 F.3d at 337 (stating that
We agree with our sister circuits that this language constitutes a sufficiently clear congressional statement that a state will and must waive its sovereign immunity when it acts to regulate local competition agreements. See BellSouth, 238 F.3d at 646; MCI, 222 F.3d at 341 (“[T]he 1996 Telecommunications Act satisfies the requirement that Congress clearly state that participation by the state in the regulatory scheme entails a waiver of immunity from suit in federal court.“); Public Serv. Comm‘n, 216 F.3d at 938 (“[Section] 252 puts Utah on notice that Congress intends to subject it to suits brought by individuals if it acts under § 252.“); see also Bell Atl. Md., 240 F.3d at 314 (King, J., dissenting) (arguing that the provisions of the Act “clearly show Congress‘s intent to subject participating states to suits in federal
Moreover, a state commission is not obligated to waive sovereign immunity by participating in the regulatory process. The Act clearly provides that, if a state does not respond to a request to mediate or to arbitrate an interconnection agreement, the FCC is to assume that responsibility. For that reason, state participation in the regulation of local telecommunications competition is a choice, not a mandate.
It is true that the Act does not include magic words such as “waiver” or “immunity” or “suit.” The Act became effective in 1996, prior to the Supreme Court‘s decision in Seminole Tribe that Congress may not abrogate Eleventh Amendment immunity under the Commerce Clause and prior to the decision in College Savings overturning the constructive waiver doctrine of Parden. Perhaps, were Congress drafting the statute in 2001 with Seminole Tribe and College Savings in the mix, it would have been more explicit than it was. We believe, however, that the language that Congress did use is sufficiently clear to establish that a state commission‘s decision will be subject to review in an action brought in federal court by an aggrieved party and sufficiently clear that the commission may be made a party to that federal court action.
The argument is made in Bell Atl. Md. that the statute merely puts states on notice that their decisions will be subject to judicial review in federal court but that “it is a leap of logic to infer from this consent to federal-court review a consent by a State commission itself to be made a party to that federal review.” 240 F.3d at 293; id. at 290. However, as the dissent in Bell Atl. Md. aptly states, consent to federal court review of a decision “necessarily entails” being made a party to the action. There is in fact no “leap of logic” from consent by a state commission to having its decision reviewed to consent by a state commission to being a party to that review. See id. at 314 (King, J., dissenting). We agree that “by allowing State commissions to substitute as regulators for the FCC, Congress obviously intended that State commissions, just like the FCC, be made parties to federal court actions challenging their decisions.” Id. at 315 (King, J., dissenting); see MCI, 222 F.3d at 337 (holding that the language of
We hold therefore, along with the Fifth, Seventh, and Tenth Circuits, that the PUC is subject to suit in federal court under the 1996 Act because the PUC knowingly waived its Eleventh Amendment immunity by voluntarily accepting the congressional gift or gratuity of the power to regulate local telecommunications competition under the Act. The District Court had jurisdiction over the PUC and we affirm the court‘s rejection of the PUC‘s Eleventh Amendment arguments.
2. Ex Parte Young
In the alternative, we hold that the action against the individual PUC Commissioners is not barred by the Eleventh Amendment because the case presents, in the Sixth Circuit‘s terms, “a straightforward Ex Parte Young case.” Michigan Bell, 202 F.3d at 867. The Fifth, Seventh, and Tenth Circuits have all agreed: See BellSouth, 238 F.3d at 647 (5th Cir.) (stating that the Act presents a straightforward application of Young);
Application of Young here is, indeed, straightforward. As discussed in Part III A supra, we continue to view Young as generally applicable any time a plaintiff seeks prospective relief against individual state officers from an ongoing violation of federal law. See Coeur d‘Alene, 521 U.S. at 296, 117 S.Ct. 2028 (O‘Connor, J., concurring in part and concurring in the judgment); see also BellSouth, 238 F.3d at 648-49.
Worldcom, AT & T, and Verizon all allege that various terms, rates, and conditions contained in the interconnection agreement established and approved by the PUC are inconsistent with and violative of the requirements of
If the terms of the approved interconnection agreement do violate the Act, that violation constitutes an ongoing violation of federal law. The Commissioners individually are parties to the suit. The carriers seek prospective relief in a declaration that certain provisions of the approved interconnection agreement violate the Act and in an injunction prohibiting enforcement of the agreement and requiring the PUC to establish different, more appropriate rates, terms, and conditions. This is the paradigmatic Young framework. See BellSouth, 238 F.3d at 647; MCI, 222 F.3d at 345; Public Serv. Comm‘n, 216 F.3d at 939; Michigan Bell, 202 F.3d at 867.
The Fourth Circuit is the only court of appeals to reach a different conclusion on the application of Young to the 1996 Act. The majority there relied on Justice Kennedy‘s case-by-case balancing theory, set out by him in Coeur d‘Alene, by which the federal interests served by permitting the suit against the Commissioners are balanced against the important values of state sovereignty. See Bell Atl. Md., 240 F.3d at 295. The Fourth Circuit concluded that the federal interest in federal review could not overcome the “affront to the sovereignty” of the state in being brought before a federal court to defend a decision made when acting within the scope of its regulatory authority. See id. at 295, 298. As stated in Part III A, however, we have rejected the use of such a balancing approach to Young. We therefore decline to follow the decision in Bell Atl. Md.
Moreover, we conclude that neither of the two recognized exceptions to Young bars the instant action. First, the “special sovereignty interests” exception, acknowledged by the majority of justices in Coeur d‘Alene, is not implicated. The ability of a state to make and carry out its regulatory decisions, which would be interrupted by a federal court injunction and declaration that the decision of the PUC Commissioners violated federal law, cannot be viewed as a core or fundamental matter of state sovereignty comparable to the ability of a
Second, the Seminole Tribe exception for a detailed and limited remedial scheme is inapplicable. An aggrieved party “may bring an action in an appropriate Federal district court to determine whether the agreement or statement meets the requirements” of the Act. See
We hold, consistent with the Fifth, Sixth, Seventh, and Tenth Circuits, that this action may go forward against the individual PUC Commissioners under Ex Parte Young because the carriers seek prospective relief against the individual Commissioners to stop an ongoing violation of federal law. We will affirm the District Court on this alternative ground.
IV. Verizon and PUC Appeals of the Merits
The District Court addressed and resolved several challenges, raised by Worldcom (supported by intervenor AT & T) and by Verizon, to various terms, rates, and conditions contained in the Worldcom/Verizon interconnection agreement. Five such merits issues are before us on separate, consolidated appeals by the PUC and Verizon.
A. Standard of Review
Before considering the merits of these issues, we must determine our standard of review. The District Court resolved the telecommunications challenges on summary judgment and our review of the District Court is plenary. See Ideal Dairy Farms, Inc. v. John Labatt, Inc., 90 F.3d 737, 743 (3d Cir.1996). The more difficult question is the proper standard for reviewing the PUC‘s determinations as established in arbitration and contained in the approved interconnection agreement. Section
The PUC argues that its interpretations of federal law contained in the interconnection agreement are entitled to deference under Chevron USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), pursuant to which the construction of a federal statute by a federal agency is accorded deference by reviewing courts when there has been an explicit or implicit delegation of authority to an agency to fill a gap in the statute and the agency interpretation is a reasonable one. Chevron deference is warranted
Generally, however, such deference is accorded to the interpretations of federal statutes by federal administrative agencies, not to interpretations by state agencies. See GTE South, 199 F.3d at 745 (quoting Orthopaedic Hosp. v. Belshe, 103 F.3d 1491, 1495-96 (9th Cir.1997)). The PUC argues for an exception to this general rule, given the unique structure of the Act by which Congress delegated federal regulatory power to state utility commissions and the commissions exercise federal power that the FCC otherwise would exercise.
The PUC argues that its interpretations of federal law, made in reviewing and approving interconnection agreements, should be entitled to the same deference as would the FCC‘s interpretations if the FCC were primarily responsible for reviewing the agreements. Arguably, the state commissions do possess the same institutional competence as the FCC to make such decisions in the area of telecommunications law. See Philip J. Weiser, Chevron, Cooperative Federalism, and Telecommunications Reform, 52 Vand. L.Rev. 1, 22-23 (1999). If the state commissions enjoy the confidence of Congress, they (and their interpretations of federal law) should enjoy similar confidence from the federal courts. See id. at 36. We reject this argument, however, and instead join the Ninth and Fourth Circuits in holding that a state utility commission‘s interpretations of the Act are reviewed de novo, not under Chevron, because the state commissions are not federal agencies to which deference is due. See MCI v. U.S. West, 204 F.3d at 1266; GTE South, 199 F.3d at 745.
Under the Act, there has been no delegation to state commissions of the power to fill gaps in the statute through binding rulemaking. See Mead, 121 S.Ct. at 2171. The power to promulgate binding regulations to implement the requirements of the Act and to fill statutory gaps was granted to the FCC, see
In fact, deference to the state commissions would often be impossible, given the explicit delegation of rulemaking authority to the FCC in
We will, therefore, review any PUC legal interpretations contained in the arbitration and interconnection agreement de novo. We will review factual findings under a substantial evidence standard. See MCI v. U.S. West, 204 F.3d at 1267; GTE South, 199 F.3d at 745. Under the substantial evidence test, we must uphold a decision that has “substantial support in the record as a whole.” See GTE South, 199 F.3d at 746 (citations omitted).
B. Terms of the Interconnection Agreement
1. Interconnection in Access Tandem Serving Areas
The first merits issue we must consider is the PUC‘s requirement that Worldcom interconnect in each access tandem serving area, even when there is more than one access tandem area within a single LATA. It is Worldcom‘s position that it need interconnect only once within each LATA.
The Act provides that a CLEC must be permitted to interconnect “at any technically feasible point within the carrier‘s network.”
The instant case presents a twist on the usual situation. Verizon, as ILEC, is not attempting to deny Worldcom, as CLEC, access to the network at a particular point or points, nor is Verizon attempting to require that Worldcom interconnect at another point than the one at which Worldcom chooses to interconnect. Rather, Verizon wants Worldcom to take access at several additional points in the network, to interconnect at multiple points within the LATA, even if Worldcom does not want to do so. The PUC and Verizon contend that, because the Act and the FCC regulations do not specify whether a CLEC may be required to interconnect at additional points or how many points of interconnection a CLEC may be required to have, the issue is left to the PUC‘s discretion.
To the degree that a state commission may have discretion in determining whether there will be one or more interconnection points within a LATA, the commission, in exercising that discretion, must keep in mind whether the cost of interconnecting at multiple points will be prohibitive, creating a bar to competition in the local service area. See AT & T-Pac., 31 F.Supp.2d at 852. If only one interconnection is necessary, the requirement by the commission that there be additional connections at an unnecessary cost to the CLEC, would be inconsistent with the policy behind the Act.
Moreover, the fact that
The decision where to interconnect and where not to interconnect must be left to Worldcom, subject only to concerns of technical feasibility. Verizon has not presented evidence that it is not technically feasible for Worldcom to interconnect at only one point within a LATA. Nor has Verizon shown that it is technically necessary for Worldcom to interconnect at each access tandem serving area. The PUC‘s requirement that Worldcom interconnect at these additional points is not consistent with the Act. We will affirm the District Court‘s decision, rejecting the PUC‘s interconnection requirements. To the extent, however, that Worldcom‘s decision on interconnection points may prove more expensive to Verizon, the PUC should consider shifting costs to Worldcom. See 11 F.C.C.R. 15499 ¶ 209 (1996).
2. Remote Switching Modules
The PUC determined that Worldcom would be permitted to collocate RSMs in Verizon‘s offices. The District Court affirmed this portion of the interconnection agreement. This ruling was consistent with the original interpretation of the Act by the FCC. The Act provides that CLECs are permitted to collocate equipment “necessary for interconnection or access to unbundled network elements.”
The D.C. Circuit, however, vacated ¶ 28 of the Wireline Services Order and required the FCC to give a “better explanation” for the requirement that a CLEC be permitted to collocate equipment beyond that which is “necessary, required, or indispensable” to interconnection. GTE Serv. Corp. v. FCC, 205 F.3d 416, 424 (D.C.Cir.2000). The court held that the FCC‘s interpretation of “necessary” was too broad, particularly in that it would require collocation of any and all equipment that is used for interconnection, without regard to whether such equipment unnecessarily included other features, such as switching. Id. The court rejected the FCC‘s consideration of cost savings and efficiency in broadening the meaning of “necessary,” holding that such considerations had been rejected by the Supreme
The FCC has now reissued the collocation rules in the Collocation Remand Order, to take effect September 19, 2001. In the new Order, the FCC has declared that it will allow collocation of “dramatically smaller,” “innovative equipment,” including “remote switching modules, which are small switches that are used in conjunction with host switches located in different premises.” Collocation Remand Order at ¶¶ 47 & n. 133, 48. We conclude that under this new Order the PUC‘s ruling allowing collocation of RSMs was proper.
Moreover, both the Fourth and the Ninth Circuits have held that RSMs are used for interconnection and can be a necessary piece of equipment that an ILEC may be required to collocate. See U.S. West Communications, Inc. v. Hamilton, 224 F.3d 1049, 1056 (9th Cir.2000); AT & T Virginia, Inc. v. Bell Atl.-Virginia, Inc., 197 F.3d 663, 669 (4th Cir.1999); see also MCI v. U.S. West, 204 F.3d at 1268-69 (holding, in action brought by ILEC, that provision of agreement requiring ILEC to permit collocation of remote switching units was not proscribed by the Act and was valid); AT & T-Pac., 31 F.Supp.2d at 854 (upholding state utility commission decision requiring collocation of remote switching unit).
In choosing the equipment to be used for interconnection, Worldcom cannot be required to strip down its network to its bare essentials and to use equipment that performs only a single function, resulting in a less efficient and cost-effective network and, presumably, in higher consumer prices. Verizon‘s interpretation—that equipment is not necessary for interconnection merely because it can perform other functions or because some other equipment could be used instead—is incompatible with the reissued Collocation Remand Order and with the policy behind the Act. We will therefore affirm the District Court‘s decision on collocation of RSMs.
3. Wholesale Rates
Verizon argues that the District Court erred in approving the wholesale rates to be charged to Worldcom for services to be resold under
The Act requires ILECs to “offer for resale at wholesale rates any telecommunications service that the [incumbent] carrier provides at retail to subscribers who are not telecommunications carriers.” See
The “reasonably can be avoided” standard was struck down by the Eighth Circuit as contrary to the Act. See Iowa Utils. II, 219 F.3d at 755-56.6 The court determined that the word “will” indicated certainty or actuality, meaning the statute
We agree with the Eighth Circuit that the wholesale rates must be based on the costs actually avoided by Verizon in its wholesale sales to Worldcom or to any other CLEC. A wholesale rate such as the one set by the PUC, based on costs that could be but were not actually avoided, is inconsistent with the language of the Act and cannot stand.
We conclude that the PUC erred in setting the wholesale rates for services sold to Worldcom for resale. We will remand this issue to the District Court with orders to remand to the PUC for a new determination of wholesale rates, applying whatever new rate standard the FCC promulgates on remand from Iowa Utils. II.7
4. Directory Publishing Services
The PUC ordered Verizon to provide to Worldcom directory publishing services at wholesale prices. The District Court rejected the recommendation, vacating this portion of the agreement.
Verizon must offer at wholesale rates “any telecommunications service” to be resold by Worldcom. See
At issue is the price that Verizon may charge Worldcom for directory publishing services, which requires that we decide if directory publishing services are telecommunications services under the relevant statutory definitions. If they are, Verizon must charge wholesale rates. See
The PUC argues that it is undisputed that directory publishing services are retail tariff service offerings, that is, services offered by Verizon to retail customers at prices established in tariffs filed with the FCC or the PUC. While this perhaps is true, it is irrelevant. Section
Verizon is not required to provide directory publishing services to Worldcom at wholesale prices for resale. It may provide such services at tariffed rates or at some other rates to be determined in a new interconnection agreement on remand to the PUC. We will therefore affirm the District Court on this issue.
5. Price of Unbundled Network Elements
The District Court held that the PUC‘s pricing model for the leasing of unbundled network elements did not use a forward-looking TELRIC pricing methodology, but an improper TSLRIC model. The court remanded the issue to the PUC to apply the proper pricing model. The District Court never addressed the PUC‘s actual application of its methodology or the details of the pricing decision that the PUC reached. We will vacate the District Court‘s decision and remand this issue to the District Court to review the details and substance, as opposed to the nomenclature, of the pricing model that the PUC used and the pricing decision it made.
The PUC must determine the “just and reasonable rate” to be charged for access to unbundled network elements, a rate that must be nondiscriminatory and “based on the cost... of providing the... network element,” along with a reasonable profit for the ILEC. See
The rate must be based on the forward-looking TELRIC of a discrete network element plus a “reasonable allocation of forward-looking common costs.” See
We note several points about the FCC pricing regulations. First, TELRIC “should be measured based on the use of the most efficient telecommunications technology currently available and the lowest cost network configuration, given the existing location of the incumbent LEC‘s wire centers.” See
The Eighth Circuit struck down the FCC‘s TELRIC methodology, holding that
The FCC explained the terms TSLRIC and TELRIC. Under TSLRIC, “total service” refers to the entire quantity of the service (either single service or a class of similar services) that a firm produces, along with the costs of dedicated facilities and operations used in providing that service. See Local Competition Order ¶ 677. The FCC coined and adopted the term TELRIC in the Local Competition Order to describe a different version of that methodology, one based on the specific network element or elements to be priced. See id. ¶ 678. Essentially, TELRIC appears to be an unbundled version of TSLRIC methodology, pricing discrete network elements rather than entire services. The PUC and Verizon argued that the required TELRIC methodology was a version of TSLRIC and that the PUC‘s pricing model was proper.
The PUC set prices based on what it labeled a TSLRIC methodology.9 But in reviewing that decision, the District Court did not look any further than the acronym applied by the PUC to determine whether, in fact, the PUC based prices on the forward-looking costs of discrete network elements. The record suggests that the PUC attempted to use a forward-looking, element-based methodology and believed that it had done so. The labels that the PUC used apparently confused the issue.
The PUC‘s use of the TSLRIC acronym without more, however, does not provide a basis for vacating the pricing decision. The District Court never reviewed the substance of the pricing standard, never considered whether the inputs that the PUC used in setting prices (based on the pricing model offered by Verizon) were proper or whether the prices it established were consistent with the Act. This determination is primarily a factual issue, subject to substantial evidence review, that must be performed by the District Court in the first instance.
We will remand this issue to the District Court with instructions to review the substance and merits of the PUC methodology and its pricing decision and, with the guidance of the Supreme Court‘s expected ruling on the validity of the FCC regulations, to determine whether the prices for unbundled network elements established in the interconnection agreement comport with the Act.
For the foregoing reasons, we will affirm the District Court‘s denial of the PUC‘s and Commissioners’ claims of Eleventh Amendment sovereign immunity. As to the terms of the interconnection agreement, we will reverse the District Court‘s decision with respect to the wholesale rates set by the PUC and the pricing of unbundled network elements; we will affirm the District Court in all other respects. We remand this case to the District Court for further proceedings consistent with this opinion.
AMBRO, Circuit Judge, concurring in part and dissenting in part:
Judge Roth has written an exceptional opinion for the Court. I agree with its reasoning and conclusion that the Commonwealth has waived its sovereign immunity by regulating local telephone service in Pennsylvania within the confines of the Telecommunications Act of 1996. Nonetheless, I write separately to emphasize that our holding, and indeed the holdings of the many courts of appeals that have taken the same position, is a novel one and should be so recognized. I also write separately to dissent from the Court‘s holding that the collocation of remote switching modules can be required under the 1996 Act.
A.
We hold today that the 1996 Telecommunications Act fits within the narrow exception for “gratuity waivers” discussed in College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666, 686-87, 119 S.Ct. 2219, 144 L.Ed.2d 605 (1999). The “gratuity waiver” is an exception from the general rule, set forth in College Savings Bank, that no constructive waiver of sovereign immunity can be inferred from a state‘s involvement in an area subject to federal regulation. See id. at 686, 119 S.Ct. 2219. There is reason to argue, however, that we are expanding the scope of the “gratuity waiver” exception beyond the examples given in College Savings Bank.
In discussing the general rule that there can be no “constructive waiver” of Eleventh Amendment immunity, and the resultant overruling of Parden v. Terminal Ry. of Alabama Docks Dept., 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1964), the Supreme Court emphasized that effective waivers of sovereign immunity, like other constitutional rights, must involve the “intentional relinquishment or abandonment of a known right or privilege.” College Sav. Bank, 527 U.S. at 682, 119 S.Ct. 2219 (citing Johnson v. Zerbst, 304 U.S. 458, 464, 58 S.Ct. 1019, 82 L.Ed. 1461 (1938)). Requiring a state to possess knowledge of its immunity and to intend to waive that immunity imparts upon the state a requirement of volition—it must wish to waive its immunity.
Moreover, the Court in College Savings Bank noted one other component of effective waiver; it requires a “‘clear declaration’ by the State of its waiver ... to be certain that the State in fact consents to suit.” Id. at 680, 119 S.Ct. 2219 (emphasis in original). This expression of intentional relinquishment must be unequivocal. Id. That is, not only must the waiver be clear, but the state cannot equivocate in expressing its intent. Under these standards, it is
Despite the Supreme Court‘s invocation of these two hallmarks of effective sovereign immunity waiver—intention and clarity of expression—it left a vestige of constructive waiver in those situations in which the waiver is exacted as a condition to the state‘s acceptance of Congress‘s gratuity. College Sav. Bank at 686-87, 119 S.Ct. 2219. The Court cited two cases in support of the concept of “gratuity waiver,” Petty v. Tennessee-Missouri Bridge Comm‘n, 359 U.S. 275, 79 S.Ct. 785, 3 L.Ed.2d 804 (1959), and South Dakota v. Dole, 483 U.S. 203, 107 S.Ct. 2793, 97 L.Ed.2d 171 (1987). In Petty, Congress approved a bistate commission created by an interstate compact containing a clause allowing suit. Petty, 359 U.S. at 277-78, 79 S.Ct. 785. The Court in College Savings Bank concluded that because states were barred from forming such compacts by the Constitution, Congress‘s consent to a compact was a gratuity in that it granted powers to a state entity previously denied to it. More importantly for our purposes, the Supreme Court held that this gratuity—the approval of an interstate compact—could be conditioned on the waiver of sovereign immunity and that courts could infer waiver from the state‘s acceptance of that gratuity. College Sav. Bank, 527 U.S. at 686, 119 S.Ct. 2219. Similarly, in South Dakota v. Dole, states received funding from the federal government conditioned on each state‘s acceptance of a uniform drinking age. 483 U.S. at 205, 107 S.Ct. 2793. In both cases, Congress lacked the power to abrogate the states’ sovereign immunity (in Petty) or require a mandatory drinking age (in Dole), but Congress‘s grant of a gratuity permitted it to require as a condition of the gift the very waiver or action it could not accomplish in its own right. College Sav. Bank, 527 U.S. at 686, 119 S.Ct. 2219.
Notably, in both cases cited in College Savings Bank, it was entirely clear to the state from the face of the statute itself that it was agreeing to Congress‘s condition. For example, in Petty, Congress “approved a sue-and-be-sued clause in a compact under conditions that make it clear that the States accepting it waived any immunity from suit which they otherwise might have.” Petty, 359 U.S. at 280, 79 S.Ct. 785. Similarly, the statute at issue in Dole so clearly exacted a condition on the grant of highway funds that the State of South Dakota itself sued to establish its unconstitutionality. Dole, 483 U.S. at 205, 107 S.Ct. 2793. Thus, we can assume that for “gratuity waivers” the clarity the Court demanded in College Savings Bank, for the state‘s expression of waiver has simply shifted sources. Rather than requiring a “‘clear declaration’ by the State,” College Sav. Bank, 527 U.S. at 680, 119 S.Ct. 2219, we now require a clear declaration from Congress that, by accepting the gratuity, the states will forfeit whatever rights Congress chooses to attach as a condition.1 See Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 247, 105 S.Ct. 3142, 87 L.Ed.2d 171 (1985) (finding an act of Congress does not clearly evince its intention to require states receiving funds to waive their sovereign immunity).
This requirement of clarity on Congress‘s part is a necessary component of inferring from a state‘s actions its decision to waive its sovereign immunity. Con-
Clarity, however, is only half of the requirements of effective waiver. As noted above, the Supreme Court emphasized in College Savings Bank that a waiver of sovereign immunity must also be “intentional.” 527 U.S. at 682, 119 S.Ct. 2219. The “gratuity waiver” of the Commonwealth that we approve today lacks on its face any indicia of being intentional. The Pennsylvania Utility Commission has steadfastly maintained that it did not intend to waive its immunity from suit and that its arbitration and approval of the interconnection agreement was an action taken pursuant to state law, not the 1996 Act. Of course, we recognized in the majority opinion that the 1996 Act federalized the provision of local telephone services and therefore rejected the PUC‘s reliance on state authority. See Majority Op. at 510-12; AT & T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 378 n. 6, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) (“With regard to the matters addressed by the 1996 Act, [Congress has] unquestionably [taken the regulation of local telecommunications competition away from the States]“).
Nonetheless, the PUC‘s reliance on state law is interesting for another reason. Unlike Petty and Dole, the PUC has not made any affirmative manifestation of its acceptance of Congress‘s gratuity, such as the new operation of a bistate commission or acceptance of federal highway funds. Instead, it has merely continued what it has always done—regulate local telephone service for Pennsylvanians. When Congress has taken away the PUC‘s authority with one hand and returned it (albeit in a new framework) with the other, it is difficult to understand what it is that the PUC has to do to manifest its acceding to Congress‘s condition that it waive sovereign immunity. Indeed, we have no indication here that Pennsylvania intended to waive its sovereign immunity at all,2 other than its continued presence in a field of regulation in which it has operated for the better portion of the twentieth century.
Thus, our case stands for the proposition that a “gratuity waiver” can exist even without conduct expressly accepting that gratuity, if Congress is sufficiently clear in structuring its condition. It is not simply that Congress has said that states will waive their sovereign immunity if they accept the new authority. Congress has said that if states continue to act as they have, they will waive their sovereign immunity, and thus has mandated that the states take action if they do not wish to waive their immunity. Conversely, the affirma-
Because I believe that questions of the constitutional viability of “cooperative federalism” will repeat themselves as long as Congress continues to fashion such creative regulatory regimes, we should acknowledge this novelty. See College Sav. Bank, 527 U.S. at 702-03, 119 S.Ct. 2219 (Breyer, J., dissenting) (discussing the need for legislative flexibility to foster national uniformity in regulation while preserving local control). With as yet no Supreme Court determination with respect to the issue before us, I believe that the efficacy of “cooperative federalism” requires our Court‘s flexibility in this instance.
B.
I also respectfully dissent from the majority‘s interpretation of collocation requirements of the 1996 Telecommunications Act. The Act forces ILECs “to provide, on rates, terms, and conditions that are just, reasonable, and nondiscriminatory, for physical collocation of equipment necessary for interconnection or access to unbundled network elements at the premises of the local exchange carrier.”
The majority affirms the District Court‘s order affirming the PUC‘s determination that Worldcom be permitted to collocate remote switching modules in Verizon‘s offices. Instead, I would adopt the position that locating remote switching modules in the central offices of an ILEC (Verizon) is not “necessary to interconnect” to the ILEC‘s network.
While the majority correctly notes that the FCC has promulgated new regulations in response to the D.C. Circuit‘s ruling in GTE Serv. Corp., those regulations continue to permit the collocation of remote switching modules without regard for Congress‘s express limitations in
George E. BANKS, Appellant,
v.
Martin HORN, Commissioner, PA Dept of Corrections; James Price, Superintendent of State Correctional Institute Greene; Raymond J. Colleran, Superintendent of State Correctional Institute Waymart; Commonwealth of Pennsylvania.
No. 99-9005.
United States Court of Appeals, Third Circuit.
Argued April 2, 2001.
Filed Oct. 31, 2001.