WASHINGTON – Verizon Maryland Inc. will ask the Supreme Court Wednesday to affirm the company’s right to sue a state agency over “many millions of dollars” it had to pay to local phone companies for Internet-bound calls.
The Maryland Public Service Commission required that Verizon pay the fees to MFS Intelenet Inc. and other local carriers, even after the Federal Communications Commission ruled in February 1999 that such fees were not required.
PSC officials argue that, before the FCC ruling, Verizon had entered into a contract that included the fees and it remained bound to the contract despite the FCC’s decision.
“Verizon has to pay those fees because they agreed to it in their contract,” said Susan Stevens Miller, who will argue Wednesday for the PSC. “They have to keep paying those fees until that contract runs out.”
Many of the contracts with MFS and other carriers have since expired, and new contracts do not include the Internet fees. But Verizon wants to recover funds that company officials believe they were unfairly charged.
Should the Supreme Court rule in favor of the company, Verizon could use its ability to sue a state agency to win back the funds. Any money awarded to Verizon could be passed on to Maryland customers in the form of savings, said one expert.
“Depending on who your provider is, from a strictly provincial standpoint, I would hope to see Verizon win this case,” said Steve Lash, a Maryland lawyer who writes about telecommunications issues for the American Bar Association. “If Verizon can keep its costs down, in theory at least they’ll be able to pass the savings on to the consumer.”
The dispute began when Verizon entered into an interconnection agreement with MFS. A routine contract, the agreement included a provision that Verizon pay a fee every time one of its customers made a local call to an MFS customer, as mandated by the 1996 Telecommunications Act.
But that act does not specify whether Internet-bound calls count as local calls. An Internet call typically consists of two parts: A usually local call to an Internet service provider and a second call, usually long-distance, from the provider to the web site.
Verizon argued that Internet-bound calls were a single long distance call, not subject to the local charge. MFS disagreed and appealed to the PSC, which ruled in February 1997 that Verizon had to pay the fees. That prompted other local carriers to expect the same from Verizon.
When the FCC handed down its 1999 ruling, the PSC reviewed its earlier decision but opted to still require the fees.
Verizon went to federal court to challenge the PSC’s refusal to overturn the fee assessment on Internet-bound calls, but the case was dismissed on the grounds that the commission, as a state agency, could not be sued because of its 11th Amendment sovereign immunity protection. The 4th U.S. Circuit Court of Appeals later upheld that decision.
Verizon appealed to the Supreme Court, arguing that the Telecommunications Act does not prohibit a lawsuit against a government agency. Lash said the act is vague on that point, which is what the high court will have to clarify.
Miller said the PSC is concerned that it would have to face action in both state and federal courts on Internet fee matters if Verizon wins before the Supreme Court. Right now, such matters are tried only in state court. In some instances, she said, the same case would have to be heard in both courts in order to receive rulings on both the state and the federal issues.
“The impact of having to defend our decisions in federal court is something the Constitution says we shouldn’t have to do,” she said. “That kind of doubling up of the courts will create a greater workload for the public service commission.”