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The state courts have no jurisdiction to review decisions of the Pennsylvania Utilities Commission that establish local phone rates because Congress gave the federal courts exclusive jurisdiction to hear such appeals when it passed the Telecommunications Act of 1996, the Pennsylvania Supreme Court has ruled. In MCI WorldCom v. PUC, the justices unanimously vacated an en banc decision of the Commonwealth Court, holding that the lower court never should have heard the case. The ruling is the latest in a long-running dispute between MCI and Verizon over local telephone rates that has been waged in both the federal and state courts — with conflicting results. But those conflicts have now disappeared with the state Supreme Court’s decision to recognize exclusive federal jurisdiction. In doing so, the high court flatly rejected the PUC’s argument that the Telecommunications Act is unconstitutional because it violates the 10th Amendment’s protection of state sovereignty by prohibiting a state court from reviewing the decisions of a state commission. Instead, Justice Ronald Castille said, the 10th Amendment simply prohibits Congress from “requiring states to administer federal programs against their will.” But Castille said the 10th Amendment does not prohibit Congress from offering states the choice of either regulating an activity according to federal standards or having state law pre-empted by federal legislation. “Federal regulation does not commandeer a state’s legislative power or violate the 10th Amendment as long as the state is given a choice regarding whether or not to enforce the regulation,” Castille wrote. The Telecommunications Act passes constitutional muster, Castille said, because it allows states to opt-out completely, ceding all authority to the FCC. But those states that opt to regulate, he said, must follow the federal law. “Because participation in the 1996 Act is voluntary, federal regulation, including exclusive federal jurisdiction in reviewing state commission acts, does not infringe on the state’s sovereignty in violation of the 10th Amendment,” Castille wrote. Castille also rejected the PUC’s argument that the exclusive federal jurisdiction covered only appeals from a state commission’s approval or rejection of an “interconnection agreement.” Instead, Castille opted to follow a 2003 decision by Senior U.S. District Judge Marvin Katz in Bell Atlantic v. PUC, which held that the Telecommunications Act of 1996 explicitly confers jurisdiction solely with the federal courts to decide all appeals from state commissions relating to “interconnection agreements.” Katz found that, in passing the Telecommunications Act, Congress intended to open local telephone service, which was previously operated as a monopoly, to competition. The law imposed duties on local incumbent carriers, like Verizon, to share their networks with competitors. In Pennsylvania, the transition to a competitive market was not a smooth one. After the PUC adopted Verizon’s cost model for its rate-setting determinations, MCI and AT&T filed suit in Commonwealth Court to challenge it, and Verizon filed suit in federal court to uphold the PUC’s decision. In federal court, the PUC challenged the court’s jurisdiction, arguing that it was immune from such a suit under the 11th Amendment. Two federal judges — one in Harrisburg and one in Philadelphia — rejected the 11th Amendment argument. Because such immunity rulings are immediately appealable, the PUC took the case to the 3rd U.S. Circuit Court of Appeals. In 2001, the 3rd Circuit also rejected the immunity argument. But in the meantime, the Commonwealth Court reached the merits of the case and upheld the PUC’s decision. The two federal cases were then consolidated before Katz in federal court in Philadelphia. The PUC argued that Katz lacked jurisdiction over the dispute because a federal court must afford “full faith and credit” to the Commonwealth Court decision, and that even if Katz has jurisdiction, he should nonetheless find that the provision of the Telecommunications Act granting exclusive federal jurisdiction is unconstitutional because it exceeds Congress’ authority under the Commerce Clause. Finally, the PUC also argued that if Katz found that he does have jurisdiction, his power is limited under the law to issuing an injunction barring enforcement of its order and that he does not have the power to compel the PUC to calculate new rates. Katz rejected all of the PUC’s arguments. The full faith and credit argument was “fatally flawed,” Katz found, because Congress gave the federal courts exclusive jurisdiction to hear such appeals, and the Commonwealth Court therefore “lacked jurisdiction to decide this controversy from the outset.” (Copies of the 17-page opinion in MCI WorldCom v. PUC, PICS No. 04-0420, are available from The Legal Intelligencer . Please refer to the order form on Page 11.)

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