The Aftermath of Auburn v. Qwest: How to cope
Thursday, February 7, 2002
by Christopher D. Bacha
Assistant City Attorney
City of Tacoma
Background of the Auburn Decision
This case arose out of a dispute between local government and Qwest concerning the cost of relocating Qwest's rights-of-way facilities to accommodate improvements in city streets and right-of-way. Historically, Qwest had borne the cost of relocating its facilities in such circumstances. In 1996, however, Qwest notified cities and counties in Washington that it would no longer bear those costs and that it would not relocate its facilities to accommodate street and right-of-way improvements until the city or county making those improvements paid Qwest the cost of relocating its facilities.
Eighteen Washington cities filed a complaint against Qwest in Pierce County Superior Court seeking a declaration that, under Washington state and federal law, Qwest was obligated to pay relocation costs. Qwest petitioned for and obtained removal of the case to federal district court. Qwest thereafter filed a counterclaim against the Cities of Tacoma, Auburn, Des Moines, University Place and Olympia seeking a declaration that the right-of-way ordinances adopted by each of those cities violated, inter alia, 47 U.S.C.§253(a). Qwest claimed that the ordinances "prohibit[ed] or ha[d] the effect of prohibiting" Qwest's ability to provide telecommunications service.
The terms and provisions of each of the challenged ordinances varied considerably, but share the basic purpose of establishing a generally-applicable process for franchising, licensing and supervising the use of city streets and rights-of-way by telecommunications service providers and other users of city streets and rights-of-way. Among other things, each ordinance requires those wishing to install facilities on, above or below city streets or rights-of-way to apply for and obtain a franchise or license from the City, to satisfy insurance and bonding requirements, and to follow certain procedures when performing work in the public right-of-way.
The parties filed cross motions for summary judgment on the state law relocation cost claim and Qwest also filed a motion for judgment on the pleadings with respect to its §253 counterclaim. The district court granted the cities' motion for summary judgment with respect to the state law relocation cost claim. With respect to the §253 claim, the district court denied Qwest's motion, as well as the cities' motion for partial summary judgment, as unripe. Concluding that Qwest "ha[d] not demonstrated that any of the Counterclaim Cities have attempted to enforce their ordinances against it or that any city ha[d] instructed [Qwest] that it must remove its equipment [from city right-of-way] for failure to file a franchise application," the district court reasoned that determining "which particular provision of which ordinance offends the [1996 Act]," and "whether [an] entire ordinance needs to be invalidated despite the ordinances' severability clauses" would be better accomplished "following specific attempts by the Counterclaim Cities to enforce their telecommunications ordinances. " As a result, the district court never reached, much less resolved, the merits of Qwest's §253 counterclaim.
Appeals were filed by Qwest and four of the cities. The court of appeals affirmed the district court's decision in the cities' favor on the state law relocation cost claim but reversed the district court's decision dismissing Qwest's §253 counterclaim as unripe and remanded that claim to the district court with instructions to grant judgment in Qwest's favor. The Cities sought rehearing, which the court of appeals denied on July 10, 2001. The court of appeals did, however, simultaneously issue an amended opinion. The Cities of Auburn, Des Moines and Tacoma petitioned the Supreme Court for Certiorari, which petition was denied on January 7, 2002.
The Auburn decision1 affirms the rights of local government to order relocation of telecommunication facilities located with the municipal rights of way; however, it also narrowly construes 47 U.S.C. §§ 253 (a) and (c) of the Federal Telecommunications Act of 1996 ("FTA").2 This interpretation of §§ 253 (a) and (c) leaves local governments with less than clear instruction as to what power local government retains relative to management and control of the rights of way. This paper will review the 9th Circuit decision and what limits it places on local government.
Right-of-way Management as it was
The streets and highways are built and maintained at public expense for the use of the general public in the ordinary and customary manner.3 The state, and the cities as an arm of the state, has absolute control of the streets in the interest of the public.4 The federal courts have in the past recognized this power as absolute holding that,
No private individual or corporation has a right of use of the streets in the prosecution of the business of a common carrier for private gain without the consent of the state, nor except upon conditions prescribed by the state or municipality. The use of the streets as a place of business, or as the main instrumentality of business is accorded as a mere privilege, and not as a matter of natural rights.5
and,
The city has the power to permit the streets to be occupied at sufferance or by license. If at sufferance it may under its general police power regulate the occupancy in the interest of the common welfare and for the general public good, or it may limit the manner or use within its general power as a condition to its occupancy for the common welfare. . .6
Thus, local governments were delegated broad authority to regulate and permit the use of the rights of way in a manner that supported the public interest and common good. Local governments had discretion to grant or deny a franchise for the use of the right-of-way depending upon the public interests to be served.7 However, it is clear from the 9th Circuit Court of Appeals interpretation of § 253 that this discretion has been limited to consideration only of conditions that relate to the management of the right-of-way and no other important public interests. Further, conditions that relate to management of the right-of-way appear to be limited to those conditions that control activities within the right-of-way.
Right-of-way Management As It Is: 47 U.S.C. § 253
As the U.S. Supreme Court has observed, the FTA "fundamentally restructure[d] local telephone markets."8 A critical provision of the FTA is 47 U.S.C. §253. As described in the Cities' Petition for Certiorari to the Supreme Court, 47 U.S.C. §253,
. . . represents Congress' effort to balance the 1996 Act's general goal of promoting competition in telecommunications markets, see H.R. Confer. Rep. No. 458, 104th Cong., 2d Sess. 113 (1996), with the longstanding principle that the federal government not unduly intrude upon the sphere of functions reserved to state and local governments in our system of federalism, Gregory v. Ashcroft, 501 U.S. 452, 457 (1991). Section 253 strikes this balance by preempting state and local regulations that "prohibit or have the effect of prohibiting the ability of any entity" to provide telecommunications services, 47 U.S.C. §253(a), while, at the same time, carving out safe harbors that are immune from attack under §253(a). One of those safe harbors is §253(c), which provides that "[n]othing in [Section 253] affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way. . . .
The purpose of § 253 is to protect and preserve management and control of the right-of-way and is a reservation of rights not a limitation of rights. 9 42 U.S.C. § 253 has been the subject of numerous Judicial and FCC interpretations, some of which are inconsistent with the limitations of the 9th circuit decision and some of which are consistent therewith. However, until congress acts or the U.S. Supreme Court decides what congress intended, the Auburn decision is now controlling law for 9th circuit jurisdictions despite its conflict with the apparent congressional intent. Thus, 9th circuit jurisdictions must comply with the principals set forth in the Auburn opinion. In order to understand how local governments may do so, it is important to understand how the court interpreted § 253.
47 U.S.C. § 253 provides in pertinent part as follows:
§ 253. Removal of barriers to entry
(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 [47 USCS § 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 rights-of-way 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.
(d) Preemption. If, after notice and an opportunity for public comment, the Commission determines that a State or local government has permitted or imposed any statute, regulation, or legal requirement that violates subsection (a) or (b), the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correct such violation or inconsistency.
The 9th Circuit Court of Appeals found that § 253 (a) preempts regulations that not only prohibit outright the ability of any entity to provide telecommunications services, but also those that may have the effect of prohibiting the provision of such services.10 This is what the statute says; however, it is not clear from the statutory language what is meant by "prohibit or have the effect of prohibiting". The Auburn opinion provides little practical guidance on this subject.
Auburn: The Analysis
§ 253 (a) is the general preemption provision. In order to determine if there was preemption, the court analyzed each telecommunications ordinance and found that the ordinances contained requirements that other courts had found constituted a barrier to entry. This resulted in the following amended11 ruling,
Taken together, these requirements have the effect of prohibiting Qwest and other companies from providing telecommunications services . . . and create a substantial and unlawful barrier to entry into and participation in the Counterclaim Cities telecommunications markets.12
The ordinance requirements that the court of appeals found, "taken together," had this effect were (1) the "lengthy and detailed" nature of the application form that had to be completed to apply for a franchise; (2) the requirement of a public hearing before a franchise was granted; (3) that the ordinances authorized the city to exercise discretion in deciding whether to grant, deny or revoke a franchise; (4) that transfers of a franchise or of ownership of a franchisee required city approval; (5) that the ordinances allowed the cities to impose certain fees that were not based on the "costs of maintaining the right-of-way"; and (6) that the ordinances contemplated the imposition of penalties for their violation. While there was no evidence in the record remotely suggesting that Qwest could not comply with each of these requirements, or that Qwest would exit the market rather than doing so, or that, if Qwest were to comply with these requirements, the cities would not grant it a franchise, in the court of appeals' view these requirements nevertheless collectively "creat[ed] a substantial and unlawful barrier to entry into and participation in telecommunications markets."
Therefore, in the view of the court, no single requirement creates a barrier, and it is the combination of some or all of the cited requirements that led the court to believe that a barrier existed. Apparently, the combination of requirements crossed some magical line from the barrier free zone into the barrier to entry zone. Although it is helpful that the court did not find that any single provision created a barrier to entry, the court has still failed to set forth a clear and objective standard for determining at what point a regulatory provision or combination of provisions constitutes a barrier to entry.
More problematic is the fact that the common theme of the offending provisions cited by the 9th Circuit relates less to market entry, and more to whether or not such provisions, in the view of the court, relate to management or use of the right-of-way. Many of the requirements cited as collectively constituting a barrier to entry are also the requirements found not to relate to management of the rights of way. Ultimately, what one must deduce is that the court will find that regulatory provisions that give discretion to grant or deny a franchise based upon criteria unrelated to management of the rights of way have the effect of being a barrier to entry if the provisions are found to be a "substantial" barrier. Therefore, Section 253 (c) may subsumed within 253(a) because the analysis for determining if the regulatory provisions constitute a barrier to entry may be the same for determining if the provision falls within the safe harbor of § 253(c). Thus, in many instances if the court finds that there is a barrier to entry, it must also find that the provision or provisions which create the barrier to entry are also unrelated to management of rights of way and thus not within the safe harbor.
The court, having found that the ordinances created a barrier to entry, next turned to § 253 (c), the safe harbor provision. In so doing, the court focused on what it described as four significant features that in the view of the court violate § 253 (c).13 These features are described below:
1. Application form that includes information requirements that do not relate to management of public rights of way:
a. Legal, Technical, and financial qualifications to provide telecommunications services.
b. Description of services to be provided now or in the future.
c. Requirements to satisfy unnamed/unspecified criteria/conditions.
d. Description of systems/plans/facilities to be utilized.
2. Reporting requirements and controls that do not relate to management of public rights of way:
a. Regulation of ownership and transfer not tied to how the ownership affects the rights-of-way.
b. Specifically, stock transfers extend far beyond management of the rights-of-way.
3. Conditions within the franchise unrelated to management of public rights of way:
a. Most-favored-community-status (best available rates, conditions and terms)
b. Free or excess capacity for use of the cities or other users.
4. Unfettered discretion to require unspecified franchise terms and terminate/revoke/grant based upon unnamed factors. Cannot terminate/revoke/grant based broadly upon anything that may be in the public interest. (Arguably this means such authority must be related to management of the rights-of-way.)
The court identified these four categories based upon its understanding of the congressional record14, guidelines set forth by the FCC in the Troy15 and Classic Telephone16 decisions and the nebulous and unformulated standard of "common sense". 17 The linchpin for the court was that the regulatory provisions must control the right-of-way and not the companies with facilities in the right-of-way. In other words the ordinances did not constitute permissible right-of-way management under §253(c) because they "establish franchise systems that regulate the telecommunications companies themselves, not merely the rights-of-way." If this is the test then, for example, local government could establish insurance, bonding and construction requirements to ensure that local government had a mechanism to ensure that work in the right-of-way was completed properly; however, it could not look at past performance or ability to perform the work as an indicator of whether or not the work would be performed properly because this would be a provision that regulated the company. This is the "common sense" approach the court took.
The problem, inter alia, is that in the real world, local government would be foolish not to look at past performance and qualifications of the company to determine if the company is fit to operate within the right-of-way and when setting or negotiating the bond or insurance limits or other financial security. It is apparent that the court has no understanding of the important right-of-way management purposes that are represented in the provisions that the court finds to be offensive. This lack of understanding is based upon the fact that the cities had no opportunity to introduce evidence explaining the justifications for the ordinance requirements at issue and the court felt no need to defer to the experience and expertise of local government in right-of-way matters.
The good news is that the majority of the regulatory provisions of the counterclaim cities ordinances likely fit within the right of management category acceptable to the court. Cities can still require conditions such as:
1. Execution of a franchise.18
2. Recovery of administrative costs that are connected with right-of-way management.
3. Recovery of street degradation costs.
4. Coordination of construction schedules.
5. Compliance with building, fire, safety and other construction type codes.
6. Compliance with zoning regulations.
7. Compliance with permit requirements.
8. Financial assurances such as bonding, insurance, financial security, and indemnities.
9. Tracking the facilities in the rights of way to prevent interference.
10. Controlling the time and location of excavation.
The foregoing is not an exhaustive list and illustrative only.19
The real question is how will the court view regulatory provisions that relate both to right-of-way management and in the courts view also regulate business activities or services? It is clear that if the court believes that the connection between right-of-way management is "too tenuous", the provision will fail. The example given was the regulation" of stock ownership. The argument advanced by the cities was that stock ownership is linked to a company's financial well-being, which may affect its continued existence, or its ability to pay fees or other necessary costs, which may ultimately affect its use of the right-of-way. This, the court found was,
. . . simply too tenuous a connection to the management of rights of way. Under the semantic two-step, § 253(c) would have no limited principal. The safe harbor provisions would swallow whole the broad congressional preemption. Municipalities could regulate nearly any aspect of the telecommunications business.20
The court would thus strike down any provision that in its view had "too tenuous" a connection to rights of way management. What is "too tenuous" is subject to debate. The telecommunications industry would likely argue that the regulatory provision must solely relate to management of rights of way and cannot in any manner regulate the business activities of the company or the services provided. This is in fact what Qwest argued in its brief in opposition to the Petition for Certiorari in the Auburn case,
The court then determined that petitioners' ordinances regulate not merely the rights of way, but also the telecommunications companies themselves, and therefore fall outside the scope of this savings clause.21
Qwest appears to argue that the two are mutually exclusive. In other words, if a requirement regulates in any way services or business activities, it will not fall within the safe harbor. This is not, however, a fair view of the 9th Circuit opinion. The court has allowed for some overlap. In the example given, it was the tenuous nature of the basis for regulation that the court found troubling. The court believed that regulation of stock transfers extended far beyond management of rights of way.22 This is not a blanket prohibition on all regulations that may also regulate business activities or services provided. Thus, the door is still open, but how wide is unknown.
In a recent filing, Qwest has filed suit against Sound Transit and the City of Tacoma claiming that the requirement of the City that Qwest relocate its facilities located within the right-of-way for ST construction is a violation of § 253. The argument advanced by Qwest is that requiring Qwest to pay relocation costs for improvements to the right-of-way and construction of a public transportation system is not a requirement that is reasonably necessary for management of the public right-of-way. It is not reasonably necessary because the requirement exceeds fair and reasonable compensation for Qwest's use of the right-of-way and because the decision to locate the ST facilities is what caused the relocation requirement. Therefore the costs are unrelated to use of the right-of-way and are related solely to the decision where to place the public improvements. In other words, when work is done in the right-of-way, it should be done in such a manner so as not to impact existing Qwest facilities. Qwest characterizes § 253 as a prohibition on requirements that are not reasonably necessary for municipalities to manage the right-of-way and which are excessive. Thus, Qwest and the court get to decide what right-of-way improvements are in the public interest and how these improvements should be accomplished.
Conclusion
Local Governments should pay attention to the Auburn decision when drafting regulatory ordinances and granting franchises or other permission for telecommunications companies to enter into and upon and use the public rights-of-way. The industry is now seeking damages and attorneys fees under 42 U.S.C. § 1983 and if they are successful, the chilling effect on local government regulation of the rights-of-way will stifle exercise of this important police power.
In the view of the 9th Circuit Court of Appeals, other federal courts and the FCC, Congress has limited the authority of state and local governments relative to right-of-way management. This erosion of local control over right-of-way management is arguably a taking within the meaning of the 5th amendment of the United States constitution. However, to argue this point may be to concede the limitation on local government. Because this issue has not been decided and there is a split of authority on the extent of the preemptive effect of § 253 (a), it may be prudent to consider the following in an effort to comply with the principals of the Auburn opinion.
1. Adopt regulatory provisions consistent with Chapter 35.99 RCW.
2. When adopting regulatory provisions, create a legislative record supporting how each provision relates to management of the right-of-way.
3. Adopt objective criteria that form the basis for granting or denying a franchise and that relate to right-of-way management.
4. Remove any conditions which refer to unspecified criteria and for which you cannot articulate a connection to right-of-way management.
5. Application fees should be based upon costs to the local government.
6. Adopt regulatory requirements that have withstood scrutiny under § 253.23
7. Consider limiting application to information that can be tied directly to activities conducted within the right-of-way.
1 Auburn et. al. v. Qwest, 260 F. 3d 1160 (9th Cir. 2001)
2 Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996). Sections 253 (a) and (c) are a component of the FTA intended to address local and state government regulatory impediments to effective competition within the telecommunications industry.
3 Schoenfeld v. City of Seattle, 265 F. 726, 731 (W.D. Wa. 1920).
6 State of Washington ex. Rel. City of Seattle v. Pacific Telephone & Telegraph Co. et. al., 1 F. 2d 327, 330 (1924).
7 See generally, Washington Fruit Produce Co. v. Yakima, 3 Wn.2d 152 (1940).
8 AT&T v. Iowa Utilities Board, 525 U.S. 366, 371 (1999).
9 The Miller & Van Eaton, P.L.L.C. Washington D.C. law firm has prepared an excellent congressional history of the rights of way provisions in the FTA, including § 253.
11 The Cities petitioned the court for rehearing that resulted in an amended opinion. In the earlier opinion of the court, it found that these requirements each constituted a barrier to entry. Upon request for reconsideration, the court amended its opinion resulting in the above cited holding.
13 Although the court found these provisions to violate 253 (c), this author would argue that the violation is of § 253 (a) because §253 (c) is a safe harbor and (a) is the preemptive provision.
14 Quoting 141 Cong. Rec. S8172 (daily ed. June 12, 1995) (statement of Sen. Feinstein, quoting letter from the Office of City Attorney, City and County of San Francisco
15 In re TCI Cablevision of Oakland County, Inc., 12 FCC Rcd 21396 (F.C.C. 1997).
16 In Re Classic Telephone, Inc., 11 F.C.C.R. Rcd 13082 (F.C.C. 1996).
17 Auburn, at 1178. "Applying these guidelines, coupled with common sense, it is apparent that the ordinance establish franchise systems that regulate the telecommunications companies themselves, not merely the rights-of-way.
18 A city may still require a franchise as a condition of entry into the right-of-way; however, its regulatory provisions must fall within the safe harbor provisions of § 253(c).
19 For a more thorough review of acceptable regulatory requirements, see Recent Developments In Rights-Of-Way Management: Auburn et. al. v Qwest - F. 3d --, 2001 U.S. Ap. LEXIS 15518 (9th Circ. 2001), by Carol Arnold, Preston Gates & Ellis LLP, August 23, 24, 2001.
21 Respondent's Brief in Opposition, No. 01-596, page 5
23 See, TCG New York, Inc. v. City of White Plains, 125 F. Supp 2d 81 (S.D.N.Y. 2000) and BellSouth Telecommunications, Inc. v. Town of Palm Beach, 252 F. 3d 1169 (11th Cir. 2001).