Verizon Maryland Inc. v. Public Service Commission of Maryland

Background

An incumbent Maryland phone company (Verizon Maryland Inc.) negotiated an interconnection agreement with a competitor later acquired by MCI WorldCom. The Maryland Public Service Commission approved the agreement. Verizon stopped paying reciprocal compensation for calls its customers made to local access numbers for Internet service providers (ISPs), saying those calls were not "local traffic." The state commission ordered Verizon to pay past and future amounts, and a Maryland court affirmed. Verizon then filed a federal suit asking a district court to declare the state order unlawful and to stop its enforcement.

Reasoning

The core question was whether a federal district court can hear a phone company’s challenge to a state commission order and whether the company may sue state commissioners to stop enforcement. The Court held that the general federal-question law (28 U.S.C. §1331) gives district courts authority to decide whether the state order conflicts with federal law, and that the Ex parte Young doctrine allows suit against state commissioners in their official roles to obtain prospective relief. The Court explained that a separate statutory review route (§252(e)(6)) does not strip district courts of their federal-question power and that the Ex parte Young inquiry looks to whether an ongoing violation of federal law is alleged, not the merits of the claim. The Court vacated the Fourth Circuit’s judgment and returned the case for further proceedings.

Real world impact

The ruling lets incumbent and competing carriers bring federal challenges to state utility orders about how to handle ISP-related calls. State utility commissions may face more federal review, and state commissioners can be sued in federal court to seek injunctions stopping enforcement of orders alleged to violate federal law. The decision does not decide the underlying merits of who must pay.

Dissents or concurrances

Justices Kennedy and Souter joined the judgment but wrote separately. Kennedy emphasized careful attention to state sovereign interests; Souter questioned whether Eleventh Amendment concerns even applied and noted the state was largely a nominal defendant.