Summary
holding FTA does not preempt ordinances enacted before the FTA where companies were already in the telephone market and providing their services
Summary of this case from Board of County Commissioners, Grant County v. US West Comm.Opinion
Civil Action No. 3-98-CV-2128-R
February 17, 2000
MEMORANDUM OPINION AND ORDER
Plaintiff City of Dallas, Texas ("City") filed suit in this Court against Defendant Metropolitan Fiber Systems of Dallas, Inc. ("MFS"). Plaintiff sought to recover money that it claimed was owed under a franchise with MFS. MFS filed a counterclaim, claiming that the franchise ordinance was preempted by both federal and state law. Asserting the same claims against the City as MFS, Brooks Fiber Communications of Texas, Inc. ("Brooks") intervened. The City moved for partial summary judgment seeking a ruling from the Court that the affirmative defenses of MFS and Brooks to its claim for additional compensation under the ordinances were barred by the doctrine of estoppel. In addition, the City sought summary judgment on the counter-claims of MFS and Brooks. In response, MFS and Brooks moved for summary judgment seeking restitution of the fees paid under the ordinances since the passage of the Federal Telecommunications Act of 1996 ("FTA"). Thereafter, the City filed a stipulated dismissal of its claims against MFS and Brooks with prejudice on October 7, 1999. Now before this Court is Defendant and Intervenor's Motion for Summary Judgment, filed September 21, 1999. For the reasons set forth below, that motion is DENIED.
Pub.L. No. 104-104, 110 Stat. 56. 47 U.S.C. § 151 et seq.
BACKGROUND FACTS
MFS and Brooks are both indirect wholly-owned subsidiaries of MCI WORLDCOM, Inc. Both MFS and Brooks are facilities-based telecommunications companies providing a wide variety of telecommunications services, including local telephone service, in competition with incumbent local exchange carriers, such as Southwestern Bell Telephone (SWBT). In Dallas, MFS and Brooks each provide business and governmental customers with dedicated, non-switched local telecommunications services, as well as related customer premises equipment. In addition, Brooks is authorized to, and provides, switched local exchange services in Dallas. Both MFS and Brooks operate in Dallas primarily through telecommunications facilities that they each own and operate. They also utilize telecommunications network facilities owned by other utilities, including unbundled network elements ("UNE") owned by SWBT.
Additionally, the Texas Public Utilities Commission ("PUC") has authorized MFS to serve in Dallas as a resale and facilities-based provider of local exchange services, local exchange usage, and switched access services. The PUC has also authorized Brooks to serve in Dallas as a resale and facilities-based provider of local exchange service, basic local telecommunications service, and switched access services.
On September 12, 1990, the City enacted City of Dallas Ordinance No. 20717 for a term of ten years, authorizing MFS to construct conduits and install telecommunications cable under public rights-of-way in certain designated areas of the City. Subsequently, the City enacted City of Dallas Ordinance No. 22653 on January 10, 1996, for a term of ten years, providing equivalent permission to Brooks to use city rights-of-way. City Ordinance 24021, passed September 8, 1999, repealed both of these ordinances.
These franchise ordinances required MFS and Brooks to:
-pay the City a fee equal to four percent of the revenue from their operations in Dallas;
-dedicate single dark fiber pairs for the City's use (at no charge) throughout the portion of their networks used for transmission purposes;
-notify the City of all communications with the FCC, SEC, and PUC that relate their provision of local telephone service in Dallas;
-maintain business and accounting records relating to their services in Dallas subject to the City's approval and inspection;
-provide the City detailed annual financial statements concerning their operations in Dallas; and
-undergo audits by the City.
However, this listing is only representative of the requirements contained in the ordinances.
DISCUSSION
I. STANDARD FOR GRANTING SUMMARY JUDGMENT
"Summary judgment is proper when, viewing the evidence in the light most favorable to the non-movant, `there is no genuine issue of material fact and . . . the moving party is entitled to judgment as a matter of law.'" Wilson Industries, Inc., v. Aviva America, Inc., 185 F.3d 492, 494 (5th Cir. 1999) (quoting Amburgey v. Corhart Refactories Corp., 936 F.2d 805, 809 (5th Cir. 1991)); Fed.R.Civ.P. 56(c). However, all reasonable doubts and inferences must be decided in the light most favorable to the party opposing the motion. See Thornbrough v. Columbus Greenville R.R. Co., 760 F.2d 633, 640 (5th Cir. 1985). Furthermore, as long as there appears to be some evidentiary support for the disputed allegations, the motion must be denied.See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Coke v. General Adjustments Bureau, 640 F.2d 584, 595 (5th Cir. 1981) (en banc).
The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, which it believes demonstrates the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Where the nonmoving party bears the burden of proof on a claim, upon which summary judgment is sought, the moving party may discharge its summary judgment burden by showing that "there is an absence of evidence to support the nonmoving party's case."Id. at 325. Once the moving party satisfies this burden, the nonmoving party may then oppose the motion by going "beyond the pleadings and by [its] own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324; Anderson, 477 U.S. at 256. Summary judgment will be granted against "a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.
II. CONTRACTUAL ESTOPPEL
The City first claims that MFS and Brooks are barred from asserting any preemption claims based upon the Texas common law doctrine of contractual estoppel. This argument has little merit in relation to Defendant and Intervenor's federal preemption claims. As MFS and Brooks point out, the doctrine of state common law contractual estoppel is inapplicable where the consequence would frustrate the purposes of federal statutes. See Lear, Inc. v. Adkins, 395 U.S. 653, 673 (1969); Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S. 173, 176 (1942); Scott Paper Co. v. Marcalus Mfg. Co., 326 U.S. 249, 257 (1945). Here, if the defendants are correct in their assertion that the FTA forbids the subject ordinances, then the City will not be allowed to invoke contractual estoppel as a defense.
The Court need not, and indeed does not, decide whether the ordinances at issue are contracts within the meaning of the contractual estoppel doctrine.
Likewise, under Texas law, a contract that violates a statute is void. See James v. Vernon Calhoun Packing Co., 498 S.W.2d 160, 163 (Tex. 1973); Woolsey v. Panhandle Refining Co., 116 S.W.2d 675, 678 (Tex. 1938); Richmond Printing v. Port of Houston Authority, 996 S.W.2d 220, 224 (Tex.App.-Houston [14th Dist.] 1999, no writ). Additionally, Texas courts hold that estoppel cannot give a prohibited contract validity. See Moser Co. v. First Church of Christ, Scientist, 525 S.W.2d 946, 949 (Tex.Civ.App.-Waco 1975, no writ); Gress v. Gress 209 S.W.2d 1003, 1006 (Tex.Civ.App.-Galveston 1948, writ ref'd n.r.e.). Thus, if the ordinances are found to violate Texas PURA, then the City is prevented from asserting a contractual estoppel defense. However, if the ordinances are not found to violate federal or state law, then the issue of contractual estoppel is meaningless. There is simply no point in estopping a party from claiming preemption by a statute that does not preempt. Based upon the circular reasoning that must be accomplished, pursuant to Texas law, the Court denies the City's assertion of contractual estoppel as a defense.
Although the City of Dallas has argued that at most the ordinances at issue are voidable rather than void, the City falls to cite any relevant case law for this proposition.
The reasoning is circular, as applied to this case, in that the Court must first determine whether the ordinances violate the statutes before determining the availability of the contractual estoppel defense. However, if contractual estoppel is available, there is nothing against which the City can apply contractual estoppel because the Court would have already held that the statutes do not preempt the ordinances.
III. PREEMPTION
Both MFS and Brooks argue that the subject ordinances are preempted by the FTA, as well as Texas PURA.
A. FTA
MFS and Brooks argue that this Court's decisions in the threeATT Commun. of the Southwest v. City of Dallas cases, 52 F. Supp.2d 763 (N.D. Tex. 1999) ("ATT III"); 52 F. Supp.2d 756 (N.D. Tex. 1998) ("ATT II"); 8 F. Supp.2d 582 (N.D. Tex. 1998) ("ATT I"), as well as a Western District of Texas case,ATT Commun. v. City of Austin, 975 F. Supp. 928 (W.D. Tex. 1997) ("ATT-Austin"), are dispositive of the issues in this case. Disagreeing, the City argues that all four of these cases are distinguishable from the case at bar. The Court agrees with the City. The case at bar is distinguishable from the prior ATT cases.
Effective February 8, 1996, Congress enacted the FTA. The FTA made sweeping changes to the industry and ended the monopolies in local telephone service. See ATT-Austin, 975 F. Supp. at 933-34. A critical feature of Congress' plan to promote rapid and extensive entry of new firms into local markets is found in Section 253 of the FTA, entitled "Removal of barriers to entry," which provides in pertinent part:
(a) IN GENERAL. — No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.
(b) STATE REGULATORY AUTHORITY. — Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.
(c) STATE AND LOCAL GOVERNMENT AUTHORITY. — Nothing in this section affects the authority of a state or local government to manage the public right-of-ways or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.47 U.S.C. § 253.
1. ATT-Austin
In the Western District of Texas case, Judge Sparks issued the initial decision concerning the 1996 version of the FTA in this circuit. See generally ATT Commun., 975 F. Supp. 928. Judge Sparks interpreted § 253(a) broadly opining that "[t]he threat of criminal sanctions and fines for the failure of an entity to obtain municipal consent can indubitably only be described as a prohibition." Id. at 939. Thus, the case was limited to an analysis of §§ 253(b)(c) and Texas PURA, on the issue of "the scope of the City's authority under federal and Texas law to regulate a local service provider in a way that is unrelated to the provider's use of the public rights of way." Id. Having found Texas PURA to limit a municipality's authority under § 253(b), see id. at 940-41, Judge Sparks concluded that, "The City's only legitimate interest under federal and Texas law is to regulate its public rights-of-way. . . ." Id. at 941. However, ATT did not "install, operate, maintain, or repair any telecommunications facilities in the City's rights-of-way." Id. at 934. Thus, as a matter of law, Austin's regulation of ATT was unrelated to the provider's use of the public rights-of-way. See id. at 941.
2. ATT I
This Court adopted Judge Sparks' conclusions in ATT I, 8 F. Supp.2d at 588, agreeing with Judge Sparks that § 253(b) was not applicable to municipalities. See id. at 591. Further, this Court held that a municipality "may only regulate the use of their rights-of-way and charge a fee for that use," under § 253(c) and Texas PURA. Id. at 592. Additionally, this Court held that any regulation that was not related to the use of rights-of-way was a violation of § 253(a) as an economic barrier to entry into the telecommunications market. See id. at 593. The preliminary injunction was granted because the City did not "have the authority to grant or deny [a] franchise based on its own discretion," and the City did not have authority to place conditions on a franchise or impose fees for telecommunications services unrelated to the use of rights-of-way. See id. at 592-93.
However, this Court applied different reasoning.
3. ATT II
In ATT II, this Court reaffirmed its holding in ATT I. See 52 F. Supp.2d at 757-58. However, the factual basis of the case was more akin to ATT-Austin, 975 F. Supp. 928, in that the telecommunications provider did not occupy the City's rights-of-way. See id. at 761. Therefore, the issue presented was whether a provider's "provision of fixed wireless service [would] constitute `use' of Dallas' rights-of-way under [the law]." Id. at 761. In holding that it did not, this Court required a physical nexus to constitute a "use." See id. at 761-62.
4. ATT III
Finally, in ATT III, this Court granted summary judgment on the same issues raised in the ATT I and ATT II preliminary injunction opinions. This Court reached the same conclusions expressed in the two earlier opinions. See ATT III, 52 F. Supp.2d 763. Primarily, "`granting a franchise may only be conditioned on a [provider]'s agreement to comply with the [C]ity's reasonable regulations of its rights-of-way.'" Id. at 769.
However, MFS and Brooks may place too much reliance upon one sentence in ATT III. In discussing preemption in reference to ATT's claims, this Court stated:
Whether or not § 253(c) is a "safe harbor" that allows any municipal regulation satisfying § 253(c) to be immune from a preemption attack under § 253(a) if the regulation also prohibits or has the effect of prohibiting service is irrelevant because the City has not shown, and cannot show, that its franchise requirement satisfies § 253(c).ATT III, 52 F. Supp.2d at 770 (emphasis added). However, this passage does not imply that no one could show that the types of regulations included in the franchise ordinance satisfy § 253(c). Indeed, this Court did not create a per se rule. Rather, the passage is case fact specific. In that particular case, under the facts before this Court, the City could not prove that its ordinance satisfied § 253(c).
5. Distinctions From The Case at Bar
However, none of these cases are dispositive of the case at bar. In each of the ATT cases, the city was attempting to force the providers to enter into a franchise agreement after the passage of the FTA. See ATT III, 52 F. Supp.2d at 766; ATT II, 52 F. Supp.2d at 758-9; ATT I, 8 F. Supp.2d at 587; ATT-Austin, 975 F. Supp. 934-35. In contrast, the franchise agreements in the current litigation were entered into prior to the enactment of the FTA. As this Court has previously explained, "Congress sought to foster immediate competition by stripping away many of the legal and economic impediments to entry into the local telephone markets." ATT I, 8 F. Supp.2d at 586. Indeed, § 253 is entitled "Removal of barriers to entry." Therefore, the ordinances in question could not have acted as a barrier to entry in violation of § 253 because MFS and Brooks were already in the market providing services. There is no question that, under the broad interpretations of the ATT cases, these ordinances would have been in violation of § 253(a) if they had been entered into after February 8, 1996. See ATT III, 52 F. Supp.2d at 770, 773; ATT II, 52 F. Supp.2d at 760; ATT I, 8 F. Supp.2d at 593; ATT-Austin, 975 F. Supp. at 942. Likewise, if MFS or Brooks had desired to offer additional or different services and the City required them to enter into a new franchise agreement, the new ordinances would have equally been in violation of § 253(a). See ATT II, 52 F. Supp.2d at 759-62. However, these are not the facts of the instant case. Instead, MFS and Brooks are enlisting this Court's powers to remove a barrier that does not exist. Both were already in the telephone market and providing their services at the time that the FTA was enacted. Thus, § 253 does not preempt either ordinance.
City of Dallas Ordinance No. 20717 was enacted on September 12, 1990. Ordinance No. 22653 was enacted on January 10, 1996. The FTA was enacted on February 8, 1996.
B. TEXAS PURA
Yet, the issue as to whether the ordinances are preempted by Texas PURA remains. The original PURA became effective in 1976.See ATT-Austin, 975 F. Supp. at 941. of significance to this litigation, the legislation was modified in 1995. See id. "PURA 95 unambiguously confer[ed] authority on the PUC alone to grant or deny permits to telecommunications providers who wish to operate in Texas." Id. In fact the legislation only gave municipalities the authority to regulate its public rights-of-way. See id.
The prior ATT opinions opined that the Texas PURA parallels the FTA. See ATT III, 52 F. Supp.2d at 774-5; ATT II, 52 F. Supp.2d at 760; ATT I, 8 F. Supp.2d at 592. However, the clear intention of these statements was to convey the idea that both the FTA and PURA limit a municipality's authority over telecommunications providers to regulating the use of its rights-of-way. See id. Indeed, PURA does not have a parallel to § 253(a). Rather, PURA removed all powers relating to telecommunications providers from the municipalities when it-transferred these powers to the PUC. See ATT I, 8 F. Supp.2d at 592; ATT-Austin, 975 F. Supp. at 941. Thus, any regulation of MFS and Brooks that is not related to the use of the City's rights-of-way is preempted by PURA. See id.
Yet, MFS and Brooks do not present any evidence as to why the subject ordinances are not reasonably related to their use of the City's rights-of-way. Both MFS and Brooks rely on this Court's prior rulings that portions of the City's franchise ordinance are in violation of the FTA' s proscriptions against the imposition of economic barriers to entry. However, as this Court has already pointed out, § 253(a) of the FTA is inapplicable to the subject ordinances. Moreover, the quote in footnote 3, of MFS and Brooks' memorandum of law refers to the City's imposition of additional conditions on receiving a franchise, not on fees charged by the City for the use of the City's rights-of-way. See ATT I, 8 F. Supp. at 593. In that same opinion, this Court stated, "It is not necessary for the Court to determine at this time what would constitute a reasonable fee for the use of rights of way." Id. In fact, this Court did not rule on the issue of reasonable fees for the use of the rights-of-way. Beyond relying upon the ATT cases, MFS and Brooks have not produced evidence in support of their position. Therefore, Brooks and MFS have failed to carry their summary judgment burden with respect to the City's imposition of fees unrelated to the use of the City's rights-of-way. See Celotex, 477 U.S. at 323.
Because the subject ordinances were repealed and the FTA would prevent the City from enacting the same type ordinances, all of the claims concerning the ordinances, which are not related to MFS and Brooks' restitution claims, are moot.
Memorandum of Law in Support of MFS['] and Brooks' Motion for Summary Judgment and in Opposition to the City of Dallas' Motion for Partial Summary Judgment
Contrary to the implications in their motion and reply, Brooks and MFS have the burden of proving that the subject ordinances are not reasonably related to the use of the City's rights-of-way. Brooks and MFS are claiming that the ordinances are preempted by Texas PURA. However, the case law holds that the TEXAS PURA preempts every power that is not related to the use of a municipality's rights-of-way. See ATT I, 8 F. Supp.2d at 592. Thus, it is incumbent on Brooks and MFS to prove that the fees contained within the ordinance are unrelated to the use of the City's rights-of-way. See Celotex, 477 U.S. at 323.
IV. RESTITUTION
Finally, as this Court has determined that the FTA does not preempt the subject ordinances and that material fact issues remain as to MFS and Brooks' Texas PURA preemption claims, the question of restitution becomes an issue for trial.
CONCLUSION
For the reasons stated above, Defendant and Intervenor's Motion for Summary Judgment is DENIED.
It is so ORDERED.