Issue
In Qwest Corporation v. City of Portland, (— F.3d —, 2004 WL 2283287, 9th Cir. (Or.), Oct. 12, 2004), the United States Court of Appeals examined the issue of whether the Federal Telecommunications Act of 1996 (FTA) preempts the municipal ordinances of Oregon cities under which franchise fees are assessed to a telecommunication provider.
Facts
The Portland City Council issued a revocable permit in 1932 to Pacific Telephone and Telegraph Company to use the city’s public right-of-way to provide telecommunications services. Qwest Corporation later acquired the permit. In 1989, Qwest lobbied the Oregon legislature to adopt a separate privilege tax for existing local telecommunications carriers in exchange for the use of the right-of-way. In response, the Oregon legislature authorized cities to assess fees up to seven percent of the carrier’s gross revenues. The City of Portland and other Oregon cities entered into nonexclusive agreements with Qwest which allowed Qwest to use public right-of-way in exchange for seven percent of gross revenues earned within the cities’ boundaries. However, ten years later the City of Portland revoked its permit and the parties were unable to negotiate a new permit. The City of Portland then granted a temporary revocable permit for continued use of its public right-of-way.
Qwest sued the City of Portland in federal district court alleging that its franchise and telecommunications ordinances are preempted by the FTA. Nine other Oregon cities (Cities) intervened in the action seeking past-due franchise fees from Qwest. The district court granted judgment in favor of Portland and Cities finding that Qwest failed to show that the franchise fees had the effect of prohibiting Qwest’s provision of telecommunication services under the FTA. Furthermore, the Court found that the FTA did not categorically prohibit Cities from basing the fees on Qwest’s gross revenue instead of on the actual costs for the use of Cities’ right-of-way.
Appellate Court Decision
Section 253 of the FTA “preempts regulations that not only prohibit outright the ability of any entity to provide telecommunication services, but also those that ‘may . . . have the effect of prohibiting the provision of such services.'” The Court noted that the district court failed to analyze each of the ten cities’ challenged ordinances under section 253. Because each ordinance is unique, the Court of Appeals concluded that that district court erred in failing to delineate its findings with regard to each individual city’s franchise and fee requirements. The Court sent the case back to the district court to determine if each ordinance prohibits the ability of Qwest to provide telecommunications service.
However, the Court determined that the trial court properly rejected Qwest’s challenge that gross-revenue based fees are categorically prohibited by the FTA. The trial court found that Qwest was prohibited from challenging the issue because Qwest’s predecessor, US West, had previously challenged the issue in Oregon state court. The Oregon Court of Appeals ruled that the City of Eugene’s seven percent gross revenue-based right-of-way fee was not preempted by section 253. The Ninth Circuit Court of Appeals found that the state court’s decision on the issue in the US West case precluded Qwest from challenging the other cities’ revenue-based right-of-way fees.