Opinion
1:02-CV-1772-LJM-WTL
March 11, 2003.
ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on the parties' cross-motions for summary judgment on the plaintiff's, Indiana Bell Telephone Company, Incorporated ("Ameritech"), motion for injunctive and declaratory relief against defendants Indiana Utility Regulatory Commission ("IURC") and its Commissioners, named in their official capacities. Ameritech claims two IURC orders (collectively referred to herein as the "Orders"), entered with respect to Ameritech's planned application to the Federal Communications Commission ("FCC") to provide long distance services, are inconsistent with and preempted by the Telecommunications Act of 1996 ("Act"). Ameritech requests the Court declare the Orders invalid as inconsistent with the Act and enjoin the IURC from enforcing the Orders against Ameritech. The IURC and the Intevenor-Defendants, ATT Communications of Indiana, GP and TCG Indianapolis, Z-Tel Communications, Inc., McLeodUSA Telecommunications Services, Inc., WorldCom, Inc., and the Indiana Office of Utility Consumer Counselor ("OUCC"), (collectively, "Defendants") ask the Court to find the Orders consistent with the Act, and dismiss Ameritech's claims with prejudice. For the reasons set forth herein, Ameritech's motion is GRANTED. The Orders are inconsistent with and conflict with the Act.
I. FACTUAL AND PROCEDURAL BACKGROUND
On October 16, 2002, the IURC issued its Opinion and Order on Performance Assurance Plan ("Initial Order"). The Initial Order directed Ameritech to implement the Performance Assurance and Remedy Plan ("Remedy Plan") created by and attached to that Order. The second IURC Order relevant here is its December 19, 2002, Order on Stay and Reconsideration ("Reconsideration Denial"). The Reconsideration Denial modified parts of the Remedy Plan, but denied Ameritech's petition for reconsideration and its request that the Remedy Plan's implementation be stayed pending judicial review. Otherwise, the text of the Reconsideration Denial is largely identical to that of the Initial Order.
A. THE PARTIES AND THE FEDERAL CONTEXT FOR THE ORDERS
Ameritech, which provides telephone exchange service, exchange access and other telecommunications services in Indiana, is an "incumbent local exchange carrier" ("ILEC") as defined in Section 251(h) of the Act, and a "Bell operating company" ("BOC") as defined in 47 U.S.C. § 153(4) and used in Section 271 of the Act. The IURC is a "State commission" within the meaning of Sections 251, 252 and 271 of the Act, of which the other named defendants are (or at times pertinent hereto were) the Commissioners.
The Intervenor-Defendants are several "local exchange carriers" ("CLECs"), as defined in 47 U.S.C. § 153(44), that compete with Ameritech, and the OUCC. The CLECs are new entrants to the local telephone market, and provide local telephone service in competition with Ameritech in Indiana. The CLECs rely on Ameritech to provide them with access to Ameritech's network in order to enter and compete in the local market, and all have entered into "interconnection agreements" with Ameritech. The CLECs were parties before the IURC, and intervened in this case to defend the Orders. The OUCC is the statutory representative of Indiana ratepayers, consumers, and the public in proceedings involving utility matters. Ind. Code § 8-1-1.1. The OUCC intervened in this case to defend the Orders and represent the ratepayers' interests.
The OUCC adopted the arguments in the CLECs' joint brief. The IURC filed a separate brief but also adopted the arguments in the CLECs' joint brief.
The Act significantly revamped the Communications Act of 1934, 47 U.S.C. § 151 et seq., creating a comprehensive federal scheme of modern telecommunications regulation administered by the FCC. While state utility commissions may participate in carrying out the Act, the primacy of federal law on the matters addressed by the Act is clear. Congress "unquestionably" took "regulation of local telecommunications competition away from the States" on all "matters addressed by the 1996 Act," and it requires that "state commissions' participation in the administration of the new federal regime is to be guided by federal-agency regulations." ATT Corp. v. Iowa Utils. Bd., 525 U.S. 366, 378 n. 6 (1999) (original emphasis).
As is pertinent here, the Act governs two aspects of telecommunications competition. The first is Part II of the Act, known as "Development of Competitive Markets." Pub.L. 104-104, 110 Stat. 5, 7 (1996). This part of the Act includes the terms under which ILECs provide "interconnection" and other wholesale services to requesting CLECs on a nondiscriminatory basis. The "interconnection agreement" process, established by Sections 251 and 252 of the Act, reflect Congress' conscious choice of a "de-regulatory national policy framework" to implement the Act's nondiscrimination requirements. H.R. Rep. No. 104-458, at 113 (1996).
Section 251 of the Act establishes the rights and obligations of ILECs and CLECs. 47 U.S.C. § 251. Section 251 provides that the FCC will not preclude enforcement of consistent state regulations implemented to further the access and interconnection obligations of local exchange carriers. Id. at 251(d)(3). Section 252 of the Act establishes the process by which CLECs can gain interconnection with and access to ILECs' networks, facilities, and services. Id. § 252. The state commissions are enlisted to help negotiate and arbitrate interconnection agreements where private negotiations fail to produce a complete agreement within a specific period of time. Id. § 252(a), (b). In resolving the issues raised in an arbitration, the state commission must abide by certain standards set out in Section 252(c). Specifically, it must ensure that the agreement meets the pro-competitive requirements of Section 251 and any regulations promulgated pursuant to that section, determine whether the rates set are in compliance with Section 252(d), and set a schedule for implementing the terms and conditions of the agreement. Id. § 252(c). Before any interconnection agreement may be implemented or enforced, whether it was produced by negotiation or arbitration, the state commission must approve it. Id. § 252(e)(1).
The second pertinent area of telecommunications competition addressed by the Act involves Congress' decision to open the "interLATA services" or "long distance" market to BOCs such as Ameritech. This falls within Part III of the Act, known as "Special Provisions Concerning Bell Operating Companies." Pub.L. 104-104, 110 Stat. 5, 32-33 (1996). Section 271 of the Act sets forth the process by which a BOC may apply (a "271 Application") for FCC authority to provide long distance services originating in any state within the BOC's service region, and the factors the FCC evaluates in deciding whether to grant a 271 Application. 47 U.S.C. § 271. Under Section 271(d)(2)(B), the FCC consults with the relevant state commission to verify that (a) the BOC has one or more state-approved interconnection agreements with a facilities-based competitor, formed pursuant to Sections 251 and 252, or a Statement of Generally Available Terms and Conditions ("SGAT"); and (b) either the interconnection agreement(s) or the SGAT satisfies the 14-point "Competitive Checklist" in Section 271(c)(2)(B), as required for the BOC's receiving long distance authority. Though the state commission makes an advisory recommendation on a BOC's satisfaction of the Competitive Checklist, Congress assigned the FCC the authority to make the actual decision on that issue and on whether to grant a 271 Application. See MCI Telecomms. Corp. v. Illinois Bell Tel. Co., 222 F.3d 323, 329-30 (7th Cir. 2000), cert. denied, 531 U.S. 1132 (2001).
In addition to evaluating present compliance with Section 271(c)(2)(B)'s Competitive Checklist, the FCC has considered whether BOC compliance will continue after approval is granted. In this regard, BOCs have, as part of the 271 Application process, proposed "performance assurance" or "remedy" plans that (a) establish statistical and mathematical methodologies to measure BOC performance as to CLECs; and (b) provide for payments to CLECs and the pertinent state (or its commission) if the plan's performance standards are not met. In approving 271 Applications, the FCC has said "existence of a satisfactory performance and monitoring plan is probative evidence that the BOC will continue to meet its 271 obligations after a grant of [long distance] authority." In re Joint Application of BellSouth Corp., et al. for Provision of In-Region, InterLATA Services in Ga. and La., 17 F.C.C.R. 9018, ¶ 291 (May 15, 2002).
See also id. ¶ 2 (remedy plan is "designed to create a financial incentive for [BOC's] post-entry compliance"); In re Application by Verizon New England Inc. et al. to Provide In-Region, InterLATA Services in R.I., 17 F.C.C.R. 3300 ¶ 3 (Feb. 22, 2002) (same); In re Joint Application of SBC Communications Inc., et al. for Provision of In-Region, InterLATA Services in Kan. and Okla., 16 F.C.C.R. 6237 ¶ 3 (Jan. 22, 2001) (same); In re Application by Verizon Pa. Inc. et al. to Provide In-Region, InterLATA Services in Pa., 16 F.C.C.R. 17419 ¶ 3 (Sept. 19, 2001) (same); In re Application by Verizon N.Y. Inc. et al. to Provide In-Region, InterLATA Services in Conn., 16 F.C.C.R. 14147 ¶ 3 (July 20, 2001) (same).
B. THE IURC PROCEEDING
The Orders and the Remedy Plan arose out of Ameritech's planned 271 Application for FCC long distance authority. Ameritech initiated the IURC proceeding to establish a process to evaluate its compliance with Section 271 of the Act, to enable the IURC to consult with the FCC on Ameritech's 271 Application. Ameritech filed a petition on February 2, 2000, asking the IURC to commence a proceeding to evaluate Ameritech's planned long distance application in Indiana. Ameritech's petition invoked the IURC's jurisdiction to commence proceedings pursuant to both Indiana state law and federal law. Petition of Ameritech Indiana at 1. Specifically, Ameritech filed its petition "pursuant to I.C. 8-1-2-61 and Section 271 of the [Act]." Id. Ameritech's petition stated that Ameritech "considers this Petition to be governed by" Indiana Code sections 8-1-2-58 and 8-1-2-61. Id. at 2. Those sections essentially authorize the IURC to hold hearings and investigations regarding a utility company's rates or service. Ameritech's petition also stated as follows: "[Ameritech] is filing this Petition to initiate the [IURC] review of the 271 application [Ameritech] intends to file with the FCC at the end of 2000 or the beginning of 2001. . . . [Ameritech] respectfully requests that the [IURC] conduct its investigation into [Ameritech's] submission of evidence in a pre-application draft of full compliance with Section 271(c). . . . Finally, [Ameritech] respectfully requests that the [IURC] . . . allow this cause to go forward to collect information allowing the [IURC] to consult with the FCC under Section 271(d)." Id. at 3-4.
At Ameritech's suggestion, the proceeding was to involve three phases. Id. at 3. The first would establish a regional independent third-party test of Ameritech's Operations Support Systems ("OSS"). The second would include review of the 14-point Competitive Checklist. The third would include review of the OSS test and commercial performance results.
The IURC used a collaborative process to allow interested parties to identify and possibly narrow or resolve disputed issues or concerns about Ameritech's compliance with Section 271. It permitted numerous CLECs to intervene, and employed a facilitator for that collaborative process. On October 26, 2000, the IURC noticed a meeting at which several CLECs presented proposed "performance assurance" or "remedy" plans.
After the presentations, a collaborative session was held but the collaborative was unable to develop a recommendation for IURC consideration. When further sessions failed to yield agreement, the facilitator informed the IURC the CLECs felt further collaboration would not be productive. The facilitator reported that the IURC would need to consider the matter, and a procedural schedule was established to permit the parties to submit the matter for IURC consideration.
On February 9, 2001, Ameritech submitted a performance assurance plan to the IURC ("Original Ameritech Plan"). This plan (a) set forth the terms and conditions under which Ameritech would report its performance toward CLECs and compare that performance to Ameritech's own performance or benchmark criteria, whichever is applicable; and (b) provided for enforcement through liquidated damages payable to CLECs and assessments payable to the State of Indiana.
On September 11, 2001, the IURC entered an order that provided performance assurance and remedy plan principles to guide further collaborative discussions. Thereafter, the parties again negotiated but were unable to reach agreement. The presiding officers then directed the parties to submit redlined versions of a remedy plan adopted by the Illinois Commerce Commission for use in Illinois, and to answer several questions issued by docket entry. The last comments were filed with the IURC on September 12, 2002.
On October 16, 2002, Ameritech informed the IURC it had negotiated with another CLEC, Time-Warner Telcom of Indiana ("Time-Warner"), as an amendment to its interconnection agreement with Time-Warner, a performance assurance plan that, upon the IURC's approval, would become available to all CLECs pursuant to Section 252(i) of the Act ("Compromise Plan"). Ameritech Indiana provided a copy of the Compromise Plan to the IURC, asking it to defer any decision on remedy plan issues in its Section 271 proceeding until it had considered the Compromise Plan.
Also on October 16, however, the IURC entered the Initial Order, effective on approval, attaching and directing Ameritech to implement the Remedy Plan. The IURC found at the outset that "[d]ue to the unique nature of this proceeding, it is appropriate to describe the Commission's role" in adopting the plan. Initial Order at 2. The IURC then proceeded to analyze its jurisdiction under both federal and state law to order Ameritech to implement the Remedy Plan.
The IURC stated that the proceeding and its limited role were unique:
It is important to note that the IURC does not have ultimate decision-making authority concerning whether Ameritech Indiana may provide interLATA services in this state. This responsibility ultimately rests with the Federal Communications Commission ("FCC"). The IURC's role in this proceeding is largely determined by Section 271(d)(2)(b), which requires the FCC to consult with the relevant state commission to verify whether the BOC has one or more approved interconnection agreements with a facilities-based competitor, or a statement of generally available terms and conditions ("SGAT"), and that either the agreements or the SGAT satisfy the 14-point competitive checklist outlined in Section 271(c)(2)(B).
* * *
It is obvious that the IURC's investigation into Ameritech Indiana's compliance with Section 271 of TA-96 is not a traditional proceeding but rather an implementation of Federal law as contemplated in Indiana Law. . . . The Commission Order as a result of this docket will not be a final action but a recommendation to the FCC. The IURC's record and evaluation will be reviewed by the FCC; the FCC may give the IURC's record and recommendation in this proceeding whatever deference the FCC deems appropriate.
Initial Order at 3.
The IURC also found that Indiana state law gave it the authority to adopt the Remedy Plan. The IURC noted that Ameritech "is subject to the jurisdiction and oversight" of the IURC and is obligated under Indiana law to "furnish adequate service and facilities," and that the IURC has "authority to issue orders regarding quality of service" provided by Ameritech. Id. at 3-4. The IURC determined that "an appropriately designed" remedy plan will both "assist [Ameritech] to provide nondiscriminatory wholesale service" to new entrants, "and impose a monetary disincentive upon [Ameritech] if it fails to deliver such nondiscriminatory service or meaningful opportunity to compete." Id. at 4. The IURC concluded that the remedy plan "will provide effective enforcement of Ameritech's service quality duties, and assist [new entrants] on an on-going basis, to effectively enter and compete in the local telecommunications markets in [Ameritech's] service territory in this state." Id.
On November 6, 2002, Ameritech filed a reconsideration petition. On November 25, 2002, in response to CLEC opposition filings, Ameritech filed a reply in support of its petition. On December 6, 2002, it moved the IURC to stay the Initial Order and Remedy Plan pending judicial review by this Court. The Reconsideration Denial, entered December 19, 2002, denied Ameritech's reconsideration petition and refused to stay the Initial Order and the Remedy Plan pending judicial review.
C. THIS ACTION AND THE COURT'S JURISDICTION
Ameritech filed its initial Complaint on November 14, 2002, following the Initial Order. After the IURC issued the Reconsideration Denial, Ameritech filed its January 3, 2003, Amended Complaint, alleging the Orders conflict with and are preempted by Sections 251, 252 and 271 of the Act (Counts I and II, respectively), and also alleging that the Orders exceed the IURC's authority under Indiana law (Count III, invoking 28 U.S.C. § 1367 supplemental jurisdiction).
The state law claims were not raised by Ameritech's motion for injunctive and declaratory relief and are now moot, in light of this dispositive ruling on the federal claims. After filing this action Ameritech filed what it advised was a protective State appeal to preserve judicial review of state law claims (if not resolved or mooted in this case). That appeal has been stayed pending this case's final disposition. Indiana Bell Tel. Co. v. Office of Util. Consumer Counselor, No. 93A02-0211-EX-950 (Ind.Ct.App. Jan. 24, 2003).
On January 7, 2003, Ameritech filed its motion and supporting documents, seeking preliminary injunctive relief based on its federal preemption claims. The Court set a briefing schedule for a hearing on January 23, 2003. At a pre-hearing conference with the Magistrate Judge, conducted the day after the January 13, 2003, filing of Ameritech's brief in support of its motion, the parties agreed the federal preemption claims would be ready for expedited final disposition by the Court, without need for additional evidence, after further briefing and a hearing before the Court that essentially would constitute oral argument on the dispositive legal issues.
The parties therefore submitted a proposed order, entered by the Court on January 16, 2003, which (a) pursuant to Federal Rule of Civil Procedure 65(a), advanced and consolidated the final hearing on the merits of Ameritech's federal preemption claims in Counts I and II of its Amended Complaint with the hearing on its verified motion for a preliminary injunction based on those claims; (b) reset the hearing for January 31, 2003; and (c) set a revised pre-hearing schedule for filing of opposition briefs by the IURC and CLECs and a reply brief by Ameritech, without submission of additional evidence by either side. The parties complied with the briefing schedule and the Court heard oral argument at its January 31, 2003, hearing, making the federal preemption claims ready for final disposition on the merits.
Interestingly, the Court did not hear from the IURC at the oral argument on January 31. Rather, the CLECs argued on behalf of the IURC. The Court finds the CLECs' leading role in this matter peculiar, because it seems the IURC would be in the best position to defend its own actions and Orders. The IURC's failure to argue at the hearing, however, does not affect the Court's decision on the merits.
II. JURISDICTION AND STANDARD
The Supreme Court recently confirmed that federal courts have jurisdiction pursuant to 28 U.S.C. § 1331 to review state commission decisions, like the IURC's Orders, where "resolution of [the plaintiff's] claim turns on whether the Act, or an FCC ruling issued thereunder, precludes the Commission" from issuing the order. Verizon Md., Inc. v. Public Serv. Comm'n, 122 S.Ct. 1753, 1759, (2002). Thus, this Court has jurisdiction to review the Orders "for compliance with federal law." Id. at 1758; accord GTE North, Inc. v. Strand, 209 F.3d 909, 921-22 (6th Cir. 2000). Although this Court has subject matter jurisdiction in this case, the Court's ability to order relief vis-a-vis the IURC is limited to ordering prospective injunctive relief. Verizon Md., 122 S.Ct. at 1760-61. Whether the Act preempts the Orders is a question of federal law, which this Court considers de novo. Michigan Bell Tel. Co. v. Strand, 305 F.3d 580, 586 (6th Cir. 2002). The IURC's interpretation of the Act also is reviewed de novo. Michigan Bell Tel. Co., 305 F.3d at 586; Southwestern Bell Tel. Co. v. Apple, 309 F.3d 713, 717 (10th Cir. 2002).III. DISCUSSION
Because the parties agreed to defer the issue of whether the IURC had authority under Indiana law to issue the Orders, the Court decides only whether the Orders are consistent with federal law. The Court concludes that the Orders do conflict with federal law. Specifically, the subject-matter of the Orders is governed by Sections 251 and 252 of the Act and the Orders conflict with those sections because they arise out of a proceeding within Section 271 of the Act, which contemplates only a consulting, and perhaps investigatory, role for state commissions.
Remedy plans do not replace the documents under which new entrants take services from Ameritech (e.g., interconnection agreements), but they "encourage compliance with [interconnection] agreements by setting forth clear remedies where [an incumbent] fails to comply" with their interconnection agreements. U.S. West Communications v. Hix, Inc., 57 F. Supp.2d 1112, 1121-22 (D.Colo. 1999). The Remedy Plan here measures whether Ameritech is providing nondiscriminatory interconnection and services to new entrants, and establishes payments Ameritech must make if its service is inadequate. In doing so, the Remedy Plan imposes additional obligations on Ameritech, beyond what is contemplated by Section 271 of the Act. As explained herein, the IURC's purported reliance on state law does not sustain its Orders.
This case appears to present issues of first impression. Other state commissions have ordered performance assurance plans or remedy plans, and there is no doubt that other federal courts have upheld a state commission's authority to include performance benchmarks and penalties in interconnection agreements. However, this Court is not aware of any other federal court reviewing whether a state commission may order a performance assurance or remedy plan in the context of a Section 271 proceeding.
A. THE ORDERS ARISE FROM A SECTION 271 PROCEEDING
Section 271 of the Act details the methods by which Congress, in opening the long distance market to competition, directed that BOCs such as Ameritech could obtain FCC authority to provide long distance services. See MCI Telecomms. Corp., 222 F.3d at 329-30. Ameritech petitioned the IURC in February, 2002, to evaluate Ameritech's performance in advance of Ameritech's planned application to the FCC to provide long distance service in Indiana. Specifically, Ameritech stated: "[Ameritech] is filing this Petition to initiate the [IURC] review of the 271 application [Ameritech] intends to file with the FCC at the end of 2000 or the beginning of 2001. . . . [Ameritech] respectfully requests that the [IURC] conduct its investigation into [Ameritech's] submission of evidence in a pre-application draft of full compliance with Section 271(c). . . . Finally, [Ameritech] respectfully requests that the [IURC] . . . allow this cause to go forward to collect information allowing the [IURC] to collect information allowing the [IURC] to consult with the FCC under Section 271(d)." Petition of Ameritech Indiana at 3-4.
The Orders disclose on their face the federal origins, specifically Section 271, of the proceeding and IURC authority. Both Orders start by identifying Ameritech's 271 Application, and state: "This is a proceeding under Section 271 of the [Act] to evaluate whether Ameritech Indiana should be allowed to offer the requested [long distance] services." Initial Order at 1; Recon. Denial at 1. Both Orders explain at length the Section 271 context and the IURC's purely advisory role. This includes statements that "[i]t is obvious" this "is not a traditional proceeding but rather an implementation of Federal law as contemplated in Indiana Law." Initial Order at 3; Recon. Denial at 3. In both Orders, the IURC followed this statement by citing two Indiana statutes, showing that the "Indiana law" on which it relied simply references its authority to take actions involving "implementation of Federal law":
Indiana Code 8-1-1-3 provides "the Commission shall formulate rules necessary and appropriate to carry out the provisions of the chapter, and shall perform the duties imposed by law upon them [sic]." In I.C. 8-1-1-15, the Legislature specifically recognized that the IURC may promulgate rules necessary "to implement a state or federal statute, rule or regulation."
Initial Order at 3; Recon. Denial at 3-4.
The IURC purported to have jurisdiction over the 271 Application proceeding pursuant to Section 271(d)(2)(B), which states that the FCC will consult with state commissions "to verify the compliance of the Bell operating company" with the Competitive Checklist. 47 U.S.C. § 271(d)(2)(B). The FCC expects state commissions to play a significant role in the 271 application process. See In re Application by SBC Communications, Inc. et al. for Authorization to Provide In-Region InterLATA Services in California, W.C. Docket No. 02-306 ¶ 2, 2002 WL 31842456 (Dec. 19, 2002). The FCC also has stated that it will view remedy plans or performance assurance plans as "probative evidence" that a BOC will continue to meet its pro-competitive requirements. In re Joint Application of BellSouth Corp., 17 F.C.C.R. at ¶ 291. However, that the FCC finds remedy plans helpful in the 271 Application process does not give state commissions the authority to order remedy plans as part of the 271 Application process. A state commission may choose to measure and test a BOC's performance, make a record of a BOC's performance, and make a recommendation to the FCC regarding that performance. However, when a state commission begins to implement enforcement measures and penalties, the commission's actions become enforcement of access and interconnection obligations.
B. THE CHARACTER OF THE ORDERS MIRRORS SECTIONS 251 AND 252
The Orders purport to regulate services Ameritech provides to CLECs, and to impose additional obligations on Ameritech. Section 251 of the Act provides the duties and obligations of ILECs and CLECs for interconnection and access to networks and services. 47 U.S.C. § 251. Sections 251 and 252 of the Act detail the methods by which Congress directed "interconnection agreements" would be reached by CLECs and incumbent local exchange carriers such as Ameritech to define their respective rights and obligations. See Indiana Bell Tel. Co. v. Smithville Tel. Co., 31 F. Supp.2d 628, 630-33 (S.D.Ind. 1998) (describing the Sections 251 and 252 interconnection process). These sections aim to increase local competition through the provision of nondiscriminatory interconnection and access to network elements and services.
The IURC made the Remedy Plan "available to CLECs as a stand-alone document, independent of the Section 251/252 interconnection agreement process." Remedy Plan § 2.1 at 6. The IURC Plan purports to "assist [Ameritech] to provide nondiscriminatory wholesale service" to new entrants, "and impose a monetary disincentive upon [Ameritech] if it fails to deliver such nondiscriminatory service or meaningful opportunity to compete." Initial Order at 4. This essentially is the same subject-matter as would be addressed in an arbitration order stemming from a Section 252 negotiation process.
The Remedy Plan, by requiring compliance with certain performance standards and imposing liquidated damages for failure to meet those standards, mirrors the objectives of Sections 251 and 252. The IURC claims that the Remedy Plan does not displace the Sections 252 process in this case, and thus is not preempted by it. The IURC argues that an interconnection agreement is intended to bind an ILEC and a CLEC regarding interconnection, services and network elements, and to define the terms and conditions of their business relationship. IURC's Brief on the Merits at 8-9. Can it truly be said that the Remedy Plan does not also bind an ILEC regarding interconnection, services and network elements, or that it does not "define the terms and conditions of their business relationship"? The Court finds that the Remedy Plan most certainly does define the business relationship between Ameritech and the CLECs, regarding interconnection and nondiscriminatory access to network elements. While a Remedy Plan might not address the more technical matters included in the CLECs' interconnection agreements with Ameritech, service quality certainly is an element of the "just, reasonable, and nondiscriminatory" interconnection and access to network elements and services that Sections 251 and 252 are meant to encourage. 47 U.S.C. § 251(c)(2)(D), (3).
The Eleventh Circuit's decision in MCI Telecommunications Inc. v. BellSouth Telecommunications Inc., 298 F.3d 1269 (11th Cir. 2002), is instructive. In that case, the Florida Public Service Commission ("FPSC") had refused to include an enforcement and compensation mechanism in an interconnection agreement between the parties, which the FPSC had arbitrated pursuant to Section 252, on the basis that those issues were not before it. MCI Telecom. Inc. 298 F.3d at 1271. Both the district court and court of appeals disagreed. The Eleventh Circuit explained:
Clearly, enforcement and compensation provisions, including the liquidated damages provision desired by MCI, fall within the realm of "conditions . . . required to implement" the agreement. [citing 47 U.S.C. § 252(b)(4)(C)] For example, 47 U.S.C. § 252(c) — to which § 252(b)(4)(C) expressly refers — specifically mandates that the state commission "provide a schedule for implementation of the terms and conditions by the parties to the agreement." 47 U.S.C. § 252(c)(3). A schedule for implementation would be potentially meaningless without some mechanism to enforce it; thus, enforcement mechanisms, like those desired by MCI are clearly contemplated by the Act and within the FPSC's authority.
Id. at 1274. Other district courts similarly have found that Sections 251 and 252 give state commissions the authority to implement performance standards and penalties. See, e.g., US West Communications, Inc., 57 F. Supp.2d at 1121-22 (finding that state commission has authority to include performance standards and penalty provisions in interconnection agreements as a means to encourage compliance with the nondiscrimination rules). It is precisely because enforcement mechanisms are contemplated by Section 252 that they cannot be developed through the 271 Application process alone.
C. FEDERAL PREEMPTION PRINCIPLES
Issues of federal preemption are relevant here because Defendants essentially argue that regardless of the Act's structure, as described above, the Act also preserves state commissions' authority to enforce regulations consistent with the Act. Defendants claim that the Orders were based, at least in part, on the IURC's state law authority. Thus, Defendants argue that the Court should examine federal preemption principles in the context of the Act's "savings clause", 42 U.S.C. § 261, to determine whether the state law cited in the Orders is inconsistent with the Act. That section upholds state regulations that are not inconsistent with the Act. 42 U.S.C. § 261(b). The savings clause further states:
Nothing in this part precludes a State from imposing requirements on a telecommunications carrier for intrastate services that are necessary to further competition in the provision of telephone exchange service or exchange access, as long as the State's requirements are not inconsistent with this part or the [FCC]'s regulations to implement this part.
Id. § 261(c).
However, federal preemption principles also are relevant in determining whether Congress intended a particular statutory scheme to be free from alteration. It is not the state law by itself that causes the Orders to be inconsistent with the Act, but the context in which the IURC relied upon its state law authority. The Court cannot review the Orders in a vacuum, but must determine whether the Orders, issued as part of a 271 Application proceeding, are inconsistent with the statutory scheme set forth by Congress.
Congressional intent "`is the ultimate touchstone' of pre-emption analysis." Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992) (quoting Malone v. White Motor Corp., 435 U.S. 497, 504 (1978)). Courts find Congress' intent either explicit in a statute's language or implicit in a statute's structure and purpose. Id.; Gade v. National Solid Wastes Mgmt. Ass'n, 505 U.S. 88, 98 (1992). Where, like in the Act, Congress has not explicitly commanded preemption, the Supreme Court has recognized two types of implied preemption. National Solid Wastes Mgmt. Ass'n, 505 U.S. at 98. First, there is field preemption, which occurs when the federal law occupies a legislative field so thoroughly "as to make reasonable the inference that Congress left no room for the States to supplement it." Cipollone, 505 U.S. at 516 (quoting Fidelity Fed. Sav. Loan Ass'n v. De la Cuesta, 458 U.S. 141, 153 (1982)); National Solid Wastes Mgmt. Ass'n, 505 U.S. at 98 (same). Second, there is conflict preemption, where compliance with both the state and federal law is physically impossible, or where the state regulation "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." National Solid Wastes Mgmt. Ass'n, 505 U.S. at 98 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).
It is this last type of preemption that causes the Orders to conflict with the Act. "`For when the question is whether a Federal act overrides a state law, the entire scheme of the statute must, of course, be considered. . . . If the purpose of the act cannot otherwise be accomplished — if its operation within its chosen field else must be frustrated and its provisions be refused their natural effect — the state law must yield to the regulation of Congress within the sphere of its delegated power.'" Hines v. Davidowitz, 312 U.S. at 67 (quoting Savage v. Jones, 225 U.S. 501, 533 (1912)).
There is no question that Congress has taken the regulation of local telecommunications competition away from the States. ATT Corp. v. Iowa Utils. Bd., 525 U.S. 366, 379 n. 6 (1999). "The new regime for regulating competition in this industry is federal in nature . . . and while Congress has chosen to retain a significant role for the state commissions, the scope of that role is measured by federal, not state law." Southwestern Bell Tel. Co. v. Connect Communications Corp., 225 F.3d 942, 946-47 (8th Cir. 2000) (emphasis added). Thus, the scope of the IURC's role in regulating local competition and the IURC's participation in 271 Application proceedings is measured by federal law and must follow the purposes and objectives of Congress. It is clear from the above examination of the Act that Section 252 provides the IURC with the authority to enforce interconnection agreements and to penalize Ameritech for anti-competitive behavior, and that Section 271 contemplates an advisory role for the IURC, whereby it might investigate and measure Ameritech's performance and make recommendations to the FCC regarding that performance. Reliance on Indiana law alone cannot alter this federal regulatory scheme. See id., 225 F.3d at 946 (finding that state law alone cannot be the source of state commission's power to enforce interconnection agreements, and that the commissions' enforcement power "springs from § 252").
The existence of the savings clause in the Act alters the Court's analysis only slightly. A savings clause will not bar the ordinary working of conflict preemption principles. Geier v. American Honda Motor Co., Inc., 529 U.S. 861, 870 (2000). Section 261 of the Act operates to save consistent state regulations, not all state regulations. The savings clause will not sanction orders evolving from a Section 271 proceeding when the authority to make those orders, even if based on state law, "springs from" Sections 251 and 252. See Southwestern Bell Tel. Co., 225 F.3d at 946. The Supreme Court has "declined[d] to give broad effect to saving clauses where doing so would upset the careful regulatory scheme established by federal law." Id. (quoting United States v. Locke, 120 S.Ct. 1135, 1147 (2000)); cf. Cahnmann v. Sprint Corp., 133 F.3d 484, 488 (7th Cir. 1998) (explaining that savings clauses in common carrier statutes do not empower state courts to "gut the federal regulatory scheme"). Thus, while Section 261 of the Act allows the IURC to rely on Indiana law that is consistent with the Act, the savings clause does not provide license to use state law in any manner the IURC chooses.
Moreover, the Court doubts whether Section 261 is relevant to an analysis of 271 Application proceedings. Section 261 upholds consistent state regulations to implement "this part." The Court understands the reference to "this part" to be to Part II of the Act, "Development of Competitive Markets" because that is the "part" within which Section 261 is found. Section 271, however, exists within Part III of the Act, "Special Provisions Concerning Bell Operating Companies." No separate savings clause appears to apply to Section 271. This view is further supported by the Court's understanding that Sections 251 and 252 contemplate state commissions may take affirmative action towards the goals of those Sections, while Section 271 does not contemplate substantive conduct on the part of state commissions. Thus, a "savings clause" is not necessary for Section 271 because the state commissions' role is investigatory and consulting, not substantive, in nature.
Defendants are correct to point out that some federal courts have held that strict adherence to the Section 252 process is not always necessary. Some federal courts have preserved state commissions' authority to enforce their own pro-competitive provisions. However, those decisions uphold state commissions' orders that arise out of Section 252-type proceedings or that are enacted pursuant to Section 251's or Section 252's preservation of state authority to implement the nondiscrimination provisions of Sections 251 and 252. See, e.g., Michigan Bell Tel. Co. v. Strand, 26 F. Supp.2d 993, 1000-01 (W.D.Mich. 1998). Thus, even if state law gives the IURC the authority to make orders within the subject-matter of Sections 251 and 252 without strictly adhering to the Section 252 process, that authority cannot be used in the Section 271 context. To do so conflicts with Sections 251 and 252.
The IURC's authority to act according to state law, if such authority exists, is found in Section 252, not in 271. Section 252 allows state commissions to enforce state law requirements in its review of interconnection agreements — not in its review of 271 Applications. Section 251 preserves state regulations that implement the pro-competitive provisions of Section 251 through "enforcement of any regulation, order or policy of a State commission that (A) establishes access and interconnection obligations of local exchange carriers; (B) is consistent with the requirements of [Section 251]; and (C) does not substantially prevent implementation of the requirements of [Section 251] and the purposes of this part." 47 U.S.C. § 251(d)(3). Case law Defendants cite to support their position that the IURC can impose remedy plans develops entirely from proceedings under Section 252.
Other federal courts have found state commission orders in conflict with, and thus preempted by, Sections 251 and 252 when those orders circumvent the detailed and specific process for setting the terms of local competition. See, e.g., Verizon North, Inc. v. Strand, 309 F.3d 935, 940-41 (6th Cir. 2002); MCI Telecomms. Corp. v. GTE Northwest, Inc., 41 F. Supp.2d 1157, 1178 (D.Or. 1999). Like the state commissions in those cases, the IURC has done more than enforce a state regulation that is additional to the requirements of the Act — the IURC has bypassed Congress' chosen process for establishing terms and conditions of Ameritech's relationship with CLECs regarding interconnection and access.
The Act does not completely preempt consistent state regulation of local competition. Ameritech does not seek to enjoin all enforcement of the state statutes upon which the IURC purports to rely in its Orders. It is not enough, however, that in some contexts, pursuant to a state law or some other section of the Act, the IURC could create a remedy plan. As the Court has already explained, the federal context, pursuant to Section 271, of the Orders is clear from their text. The issue is whether these Orders, created within the Section 271 process, conflict with the Act as a whole. The Court has found that they do. State commissions must regulate local competition within the statutory scheme created by Congress.
D. PRACTICAL OPERATION OF THE FEDERAL FRAMEWORK
CLECs still can negotiate performance assurance provisions, but must do so through the Section 251/252 process. Such provisions, whether part of an interconnection agreement or an amendment thereto, should first be the subject of private negotiations. If the parties are unable to agree on performance assurance provisions, they may petition the IURC to get involved, through formal arbitration. The IURC then will have an opportunity to review and approve or deny the provisions, and the parties can petition the federal district court for review, pursuant to Section 252(e)(6). This is precisely what happened in MCI Telecoms. Corp. v. Michigan Bell Tel. Co., 79 F. Supp.2d 768 (E.D.Mich. 1999), cited by Defendants. The District Court for the Eastern District of Michigan found that the state commission had the authority to adopt benchmarks and penalties because those issues were raised during a Section 252 arbitration and the parties had an opportunity to be heard in arbitration and in their proposed arbitration orders. MCI Telecoms. Corp., 79 F. Supp.2d at 774. The benchmarks and penalties "are helpful in implementing the nondiscrimination provisions of the Act." Id. at 776. Michigan Bell then was able to appeal an unfavorable arbitration order to the district court. Id. at 772.
To the extent the IURC may impose substantive provisions to which Ameritech does not agree, it may do so through the Section 252 process, as long as those provisions are consistent with the Act. This Court previously has upheld provisions of an IURC arbitration order that Ameritech did not agree to, because those provisions were otherwise consistent with the Act. See Indiana Bell Tel. Co., Inc. v. McCarty et al., No. IP 01-1690 C M/S (S.D.Ind. Dec. 13, 2003).
Ameritech's submission of a proposed remedy plan in the context of the 271 Application proceeding does not authorize the IURC to order a different remedy plan. Perhaps Ameritech offered to be subject to certain benchmarks and penalties because it believed that would cause the IURC to make a favorable recommendation to the FCC or would cause the FCC to be more likely to grant Ameritech interLATA authority. By choosing that path, Ameritech risked whether CLECs and the IURC would agree to its proposal, and because they did not agree, Ameritech now risks that the FCC may deny its 271 Application on the basis that it is not convinced Ameritech will continue to meet its obligations. But the IURC is not authorized to impose a plan under the guise of a Section 271 proceeding that should be developed through the standards and processes outlined in Sections 251 and 252. Section 271 clearly contemplates an advisory role for the IURC, not a substantive role. Further, Ameritech invoked the IURC's state law authority to investigate Ameritech's performance. It was perfectly reasonable for Ameritech to do so for the purposes of a 271 Application proceeding. However, the administrative proceeding remained a 271 Application proceeding and there is no authority for the IURC to change the nature of that proceeding. The Court recognizes that local competition is the overriding goal of the Act. However, this goal must be achieved within the framework Congress has chosen.
IV. CONCLUSION
The IURC has the authority to approve or order remedy plans pursuant to Section 252. Because the IURC issued its Orders through a Section 271 Application process, completely apart from the specific procedures set forth in Section 252, the Orders are inconsistent with and preempted by Sections 251 and 252 of the Act. Judgment is entered in Ameritech's favor and Ameritech's request for injunctive relief is GRANTED Each party to pay its own costs.
IT IS SO ORDERED.