                          STATE OF MICHIGAN

                           COURT OF APPEALS



WESTPHALIA TELEPHONE COMPANY and                                   UNPUBLISHED
GREAT LAKES COMNET, INC.,                                          September 6, 2016

              Petitioners-Appellees,

v                                                                  No. 326100
                                                                   MPSC
AT&T CORPORATION,                                                  LC No. 00-017619

              Respondent-Appellant,

and

MICHIGAN PUBLIC SERVICE COMMISSION,

              Appellee.


Before: OWENS, P.J., and SAWYER and SHAPIRO, JJ.

PER CURIAM.

        Respondent AT&T Corporation (AT&T) claims an appeal from an order entered by the
Michigan Public Service Commission (PSC) holding that AT&T wrongfully refused to pay
petitioners Westphalia Telephone Company (WTC) and Great Lakes Comnet, Inc. (GLC), for
switched access services, and ordering AT&T to pay $4.3 million to WTC and GLC. We vacate
the PSC’s decision and remand for further proceedings. We also lift the stay imposed pending
resolution of this appeal.

                                       BACKGROUND

       This case concerns a dispute between telephone carriers regarding payment for switching
services.

       A single telephone call often requires multiple service providers to complete. If more
than one provider is involved in the completion of a call, an arrangement must exist to allow the
providers to obtain compensation for their services. The Federal Communications Commission
(FCC) governs interstate services, 47 USC 152(b); 47 CFR 61.26, while the PSC governs
services that occur entirely within Michigan. MCL 484.2310.




                                               -1-
       Several types of carriers exist to provide telecommunications services. A long distance
telephone company is known as an interexchange carrier (IXC). A local telephone company is
known as a local exchange carrier (LEC); an LEC is either an incumbent LEC (ILEC)1 or a
competitive LEC (CLEC).2 As a general rule, an IXC must use the services of an LEC to
complete a call that is originated in one local exchange area and completed in another local
exchange area in either the same or a different state. In some circumstances, a call is taken by
one LEC, switched to an IXC, and then switched to another LEC to be completed. In some
instances, a competitive access provider (CAP), a company that operates a private network on a
wholesale basis, provides intermediate transport by linking the IXC to the LECs at the starting
and finishing points of a call. An IXC does not choose the LECs that are involved in the
transmission of a call. Those choices are made by the maker and receiver of the call.

        AT&T is registered in Michigan as an IXC, a CAP, and a CLEC, and it is licensed to
provide basic local exchange service. WTC is registered in Michigan as a rural ILEC and is
licensed to provide basic local exchange service. GLC is registered in Michigan as a CAP, but is
not licensed to provide basic local exchange service. WTC and GLC provide links between
AT&T and the local telephone companies to which AT&T sends calls and from which AT&T
sends calls.

        Switched access service (SAS) charges are charges paid by IXCs to LECs for the use of
the LECs’ network facilities to originate and terminate long distance calls. These charges are a
form of intercarrier compensation, and they may include charges made for transporting calls over
wires and switching calls (routing them in a particular direction). Interstate SAS charges are
regulated by the FCC. 47 USC 152(b). In 2001, the FCC issued an order in which it limited the
amount that CLECs could charge IXCs for interstate SAS to an amount tied to rates charged by
competing ILECs.3 In 2004, the FCC extended the cost reform to intermediate CLECs.4 These
cost reforms are codified in 47 CFR 61.26, which provides, in pertinent part:

               (a) For purposes of this section, the following definitions shall apply:

               (1) CLEC shall mean a local exchange carrier that provides some or all of
       the interstate exchange access services used to send traffic to or from an end user
       and does not fall within the definition of “incumbent local exchange carrier” in 47
       U.S.C. 251(h).


1
 An ILEC is the local exchange carrier that provided service to a specified area as of February 8,
1996. 47 USC 251(h)(1).
2
 A CLEC is a local exchange carrier that does not meet the definition of an ILEC. 47 CFR
61.26(a)(1).
3
 In the Matter of Access Charge Reform: Reform of Access Charges Imposed by Competitive
Local Exchange Carriers, 16 FCC Rcd 9923 (2001).
4
 In the Matter of Access Charge Reform: Reform of Access Charges Imposed by Competitive
Local Exchange Carriers, 19 FCC Rcd 9108 (2004).



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              (2) Competing ILEC shall mean the incumbent local exchange carrier, as
       defined in 47 U.S.C. 251(h), that would provide interstate exchange access
       services, in whole or in part, to the extent those services were not provided by the
       CLEC.

                                              * * *

                (6) Rural CLEC shall mean a CLEC that does not serve (i.e., terminate
       traffic to or originate traffic from) any end users located within either:

              (i) Any incorporated place of 50,000 inhabitants or more, based on the
       most recently available population statistics of the Census Bureau or

              (ii) An urbanized area, as defined by the Census Bureau.

                                              * * *

               (b) Except as provided in paragraphs (c), (e), and (g) of this section, a
       CLEC shall not file a tariff for its interstate switched exchange access services
       that prices those services above the higher of:

              (1) The rate charged for such services by the competing ILEC or

              (2) The lower of:

              (i) The benchmark rate described in paragraph (c) of this section or

             (ii) In the case of interstate switched access service, the lowest rate that the
       CLEC has tariffed for its interstate exchange access services, within the six
       months preceding June 20, 2001.

                                              * * *

               (e) Except as provided in paragraph (g) of this section, and
       notwithstanding paragraphs (b) through (d) of this section, a rural CLEC
       competing with a non-rural ILEC shall not file a tariff for its interstate exchange
       access services that prices those services above the rate prescribed in the NECA
       access tariff, assuming the highest rate band for local switching. In addition to the
       NECA rate, the rural CLEC may assess a presubscribed interexchange carrier
       charge if, and only to the extent that, the competing ILEC assesses this charge.
       Beginning July 1, 2013, all CLEC reciprocal compensation rates for intrastate
       switched exchange access service subject to this subpart shall be no higher than
       that NECA rate.

       In 2009, Michigan passed the Michigan Telecommunications Act (MTA or Act 182).
182 PA 2009. Act 182 requires providers of access services to set intrastate SAS rates no higher
than the rate allowed by the FCC for corresponding interstate service. This requirement is
codified in MCL 484.2310(2), which provides:


                                                -3-
               A provider of toll access services shall set the rates for intrastate switched
       toll access serves at rates that do not exceed the rates allowed for the same
       interstate services by the federal government and shall use the access rate
       elements for intrastate switched toll access services that are in effect for that
       provider and are allowed for the same interstate services by the federal
       government. Eligible providers shall comply with this subsection as of the date
       established for the commencement of the operation of the restructuring
       mechanism under subsection (9). Providers other than eligible providers shall not
       charge intrastate toll access service rates in excess of those rates in effect as of
       July 1, 2009 and shall reduce the differential, if any, between intrastate and
       interstate switched toll access service rates in effect as of July 1, 2009 in no more
       than 5 steps of at least 20% each of the differential on the following dates:
       January 1, 2011; January 1, 2012; January 1, 2013; January 1, 2014; and January
       1, 2015. Providers may agree to a rate that is less than the rate allowed by the
       federal government.

Except in limited circumstances set out in MCL 484.2310, the PSC does not set the rates charged
for toll access services. MCL 484.2310(1).

                           PROCEEDINGS IN THE INSTANT CASE

        On May 12, 2014, WTC and GLC, hereinafter referred to as complainants, filed an
application and complaint with the PSC alleging that AT&T had refused to pay SAS charges “for
intrastate calls routed by a third party carrier to GLC’s tandem switch[.]” Complainants alleged
that the call traffic involved in the dispute consisted of long distance traffic to and from
customers served by Local Exchange Carriers of Michigan (LECMI)5 and 8YY toll free calls
from wireless users delivered to LECMI’s end office switch and then routed over GLC’s
network. The application alleged that AT&T had routed call traffic “to and from LECMI via
GLC’s tandem switch[]” for a period exceeding 10 years, and from 2002 until July 2012, had
paid complainants’ invoices for the service without objection. Thereafter, AT&T asserted that
complainants were engaging in unreasonable practices designed to inflate the cost of their
services, and it began withholding a portion of its payments to complainants. Complainants sent
AT&T a formal demand letter demanding payment in full of past due amounts, but AT&T
continued to withhold payment. Complainants alleged that AT&T declined to pay, but that they
continued to handle AT&T’s call traffic. The complaint alleged breach of contract (Count I),
breach of implied-in-fact contract (Count II and pleaded in the alternative to Count I), and unjust
enrichment/breach of implied-in-law contract/quantum meruit (Count III and pleaded in the
alternative to Counts I and II).




5
  The complaint indicates that LECMI is an independent CLEC that “provides its customers with
local and long distance services, and transport services.” LECMI carried some call traffic
involved in this case, and it was found to have billed complainants for services it did not render.



                                                -4-
       AT&T filed an answer, and it also filed a counterclaim seeking to recover amounts it
alleged that complainants had overcharged it for switched access services in violation of
Michigan law.

        The Administrative Law Judge (ALJ) issued a Proposal for Decision (PFD) finding that
GLC was a CLEC within the meaning of 47 CFR 61.26(a)(1), but was not a rural CLEC within
the meaning of 47 CFR 61.26(a)(6). The ALJ determined that because GLC was a CLEC, its
intrastate SAS rates were required to be no higher than corresponding interstate SAS rates
charged by the competing ILEC. The ALJ concluded that because GLC’s intrastate SAS rates
were higher than allowed, complainants improperly billed AT&T for intrastate SAS services at a
rate that did not comply with MCL 484.2310.

         In addition, the ALJ found that complainants’ practice of overbilling did not comply with
complainants’ tariff or with state and federal law. That practice entitled AT&T to a refund of the
excess charges. The ALJ recommended that complainants’ complaint be dismissed and that
complainants be required to refund to AT&T intrastate switched access payments that exceeded
tariff rates.

        The PSC entered an order reversing the ALJ’s recommendation. The essence of the
PSC’s holding was that GLC was not a CLEC for purposes of 47 CFR 61.26. The PSC further
determined that because GLC’s interstate SAS rate complied with federal law, the rate also
complied with MCL 484.2310(2). The PSC concluded that it was not required to determine if
the rural exemption in 47 CFR 61.26(e) applied to GLC because GLC was not a CLEC. The
PSC concluded that AT&T owed WTC and GLC the amounts withheld from billings submitted
by WTC.

        The PSC also declined to order complainant to refund to AT&T charges collected for
services the evidence showed that LECMI did not render to AT&T. The PSC reasoned that the
collective billing arrangement was standard industry practice and that AT&T was required to
pursue its rights against LECMI. The PSC observed that AT&T could have made LECMI a
party to the case and asserted its claim in that manner.

       AT&T filed a claim of appeal in this Court, and moved for a stay of the PSC’s order
pending appeal. This Court entered an order granting a stay.

         On March 18, 2015, the Federal Communications Commission (FCC) issued a
memorandum opinion and order in an action filed by AT&T against WTC and GLC seeking a
refund of interstate SAS charges billed pursuant to an unlawful tariff. In re ATT Servs & AT&T
Corp v Great Lakes Comnet, Inc & Westphalia Tel Co, FCC 02-05 (rel. March 18, 2015). The
FCC agreed with AT&T’s allegations, finding that “GLC violated the Commission’s Rules
governing competitive local exchange carrier tariffs for interstate access services, and that the
tariff therefore is unlawful” (Id. at 1). Specifically, the FCC found that GLC was a CLEC for




                                               -5-
purposes of 47 CFR 61.26, even though GLC does not serve end users directly (Id. at 6-7).6 In
addition, the FCC rejected GLC’s contention that it was a rural CLEC and concluded that GLC
was not entitled to the exemption in 47 CFR 61.26(e) (Id. at 9-10).7

                                    STANDARD OF REVIEW

        The standard of review for PSC orders is narrow and well defined. Pursuant to MCL
462.25, all rates, fares, charges, classification and joint rates, regulations, practices, and services
prescribed by the PSC are presumed, prima facie, to be lawful and reasonable. Mich Consol Gas
Co v Pub Serv Comm, 389 Mich 624, 635-636; 209 NW2d 210 (1973). A party aggrieved by an
order of the PSC has the burden of proving by clear and convincing evidence that the order is
unlawful or unreasonable. MCL 462.26(8). To establish that a PSC order is unlawful, the
appellant must show that the PSC failed to follow a mandatory statute or abused its discretion in
the exercise of its judgment. In re MCI Telecom Complaint, 460 Mich 396, 427; 596 NW2d 164
(1999). An order is unreasonable if it is not supported by the evidence. Associated Truck Lines,
Inc v Pub Serv Comm, 377 Mich 259, 279; 140 NW2d 515 (1966).

       A final order of the PSC must be authorized by law and be supported by competent,
material, and substantial evidence on the whole record. Const 1963, art 6, § 28; Attorney
General v Pub Serv Comm, 165 Mich App 230, 235; 418 NW2d 660 (1987).

        A reviewing court gives due deference to the PSC’s administrative expertise, and is not to
substitute its judgment for that of the PSC. Attorney General v Pub Serv Comm No 2, 237 Mich
App 82, 88; 602 NW2d 225 (1999). We give respectful consideration to the PSC’s construction
of a statute that the PSC is empowered to execute, and we will not overrule that construction
absent cogent reasons. If the language of a statute is vague or obscure, the PSC’s construction
serves as an aid to determining the legislative intent, and will be given weight if it does not
conflict with the language of the statute or the purpose of the Legislature. However, the
construction given to a statute by the PSC is not binding on us. In re Complaint of Rovas
Against SBC Mich, 482 Mich 90, 103-109; 754 NW2d 259 (2008). Whether the PSC exceeded
the scope of its authority is a question of law that is reviewed de novo. In re Complaint of
Pelland Against Ameritech Mich, 254 Mich App 675, 682; 658 NW2d 849 (2003).


6
 The FCC stated that it disagreed with the PSC’s contrary conclusion. In re ATT Servs & AT&T
Corp v Great Lakes Comnet, Inc & Westphalia Tel Co, FCC 02-05 (rel. March 18, 2015), at 6 n
64.
7
  WTC and GLC filed a petition in federal court seeking review of the FCC’s decision. On May
24, 2016, the Court of Appeals for the DC Circuit issued a decision denying the petition in part
and remanding the matter to the FCC for further consideration. Great Lakes Comnet, Inc v FCC,
823 F3d 998 (CA DC, 2016). The DC Circuit upheld the FCC’s finding that GLC was a CLEC
and thus was subject to benchmark regulation under 47 CFR 61.26. Great Lakes Comnet, 823
F3d at 1002-1004. The DC Circuit remanded the case to the FCC for further consideration of
GLC’s argument that it was a rural CLEC and thus was exempt from the FCC’s benchmark
regulations. Id. at 1004. The DC Circuit denied the petition in all other respects. Id. at 1005.



                                                 -6-
                                           ANALYSIS

        On appeal, AT&T argues that because federal courts of appeal have exclusive jurisdiction
to determine the validity of all final FCC orders, 28 USC 2342(1), this Court cannot determine
that the FCC’s decision is invalid. We agree, vacate the PSC’s order, and remand this matter to
the PSC for reconsideration in light of the decisions of the FCC and the DC Circuit.

        The PSC’s decision that AT&T owed complainants the amounts AT&T withheld from
billings submitted by WTC was based on the PSC’s conclusion that GLC was not a CLEC for
purposes of 47 CFR 61.26. The PSC noted that as a general rule it does not decide questions of
federal law, unless those questions are delegated to the state, MCL 484.2201, but acknowledged
that MCL 484.2310(2) required it to determine “the allowable interstate access rate applicable to
GLC, in order to determine whether the intrastate rate is lawful.” The PSC observed that the
FCC had not provided a definitive answer to the question whether a CAP such as GLC was a
CLEC for purposes of the federal access charge rule, i.e., 47 CFR 61.26 (Id.). The PSC stated as
follows:

                The federal access charge rule contains a definition of “CLEC,” and there
       is simply no avoiding the fact that that definition describes a carrier that “provides
       some or all of the interstate exchange access services used to send traffic to or
       from an end user.” 47 CFR 61.26(a)(1). While the federal rule does not contain a
       definition of “end user,” the Commission is convinced that under federal law (like
       state law) a telecommunications provider would not be considered an end user.
       See, e.g., 47 CFR 69.2(m). To ignore the requirement that the carrier be sending
       traffic “to or from an end user” would be to ignore a fundamental component of
       that definition, and to render that part of the federal rule surplusage, that is,
       language that does not add meaning. This would explain why, in the CAF Order,
       the FCC seems to indicate that it has not yet dealt with the issue of access rates
       for all carriers.

       As noted above, after the PSC entered its order, the FCC entered its decision in which it
held that GLC was a CLEC for purposes of 47 CFR 61.26. The FCC found, based on its
determination that GLC was a CLEC, that the interstate rates charged by GLC and WTC were
unlawfully high. The DC Circuit affirmed the PSC’s decision. The FCC’s decision directly
contradicts the conclusion on which the PSC based its decision, and thus calls into question the
PSC’s finding that complainants’ intrastate rates, which matched the interstate rates, were lawful.

        The PSC has no authority to pass on the validity of an FCC decision. The federal courts
of appeal have exclusive jurisdiction to determine the validity of all final FCC orders. 28 USC
2342(1). At this juncture, the PSC’s interpretation of 47 CFR 61.26 contradicts that of the FCC;
furthermore, the PSC’s decision is based on an interpretation of 47 CFR 61.26 that the FCC has
ruled is erroneous. Had the PSC interpreted 47 CFR 61.26 in the same manner as did the FCC, it
is very likely that the PSC would have reached the opposite conclusion. Accordingly, we vacate
the PSC’s decision and remand this matter to allow the PSC to reconsider its decision in light of
the decisions of the FCC and the DC Circuit.




                                                -7-
        In addition, AT&T argues that the PSC erred by refusing to order complainants to refund
to AT&T overpayments in excess of $815,000 complainants collected on behalf of LECMI. It is
undisputed that WTC’s bills to AT&T included a charge for some services by LECMI that
LECMI never provided. Further, under a multi-party agreement, WTC acted as a billing agent
and passed to LEMCI some portion of the funds received from AT&T. On appeal, WTC does
not argue that AT&T is not entitled to recoup the amount it paid for services that were not
performed. Instead, the dispute centers on what party, WTC or LEMCI, should issue a refund or
credit to AT&T. Complainants state that WTC stands ready to issue a credit to AT&T when
LECMI grants consent for such action, which to date it has not done. In the proceedings below
the PSC did not examine whether under the multi-party agreement WTC can be required to
reimburse AT&T for the monies WTC collected for LECMI’s wrongful charges regardless of
LECMI’s willingness to reimburse WTC. Instead, the PSC concluded that AT&T was required
to pursue LECMI to obtain a refund, and that AT&T should have made LECMI a party to the
action and asserted a claim for the funds wrongfully paid to LECMI.8

       We remand to the PSC on this issue. On remand, the PSC shall determine the scope of
WTC’s liability based on the multi-party contract, i.e., determine whether WTC has an
independent duty under the multi-party agreement to reimburse AT&T for the amounts
improperly charged by LECMI regardless of whether LECMI consents to cover the
reimbursement.

                                       CONCLUSION

       We vacate the PSC’s decision and remand this matter for reconsideration in light of the
decisions made by the FCC and the DC Circuit, and for consideration on the merits of AT&T’s
argument that it is entitled to recoup the funds it paid for services not performed by LEMCI.

      Vacated and remanded for further proceedings consistent with this opinion. Stay lifted.
We do not retain jurisdiction.



                                                          /s/ Donald S. Owens
                                                          /s/ David H. Sawyer
                                                          /s/ Douglas B. Shapiro




8
 Presumably, the PSC concluded that AT&T should have filed a third-party complaint against
LECMI or joined LECMI as a necessary party. MCR 2.204(A); MCR 2.205(A).



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