Issue
In lawsuits brought by Qwest Communications Corporation (Qwest) against the city of Berkeley, and several cities in Arizona, the United States Court of Appeals reviewed the circumstances under which the Federal Telecommunications Act of 1996 (FTA) preempts local ordinances that regulate telecommunications providers.
The court’s decisions concluded that local ordinances are preempted by the FTA, but that in order to bring action to stop enforcement of the ordinances, the telecommunications providers must demonstrate they have suffered an actual injury as a result of the local regulation. The court also found that fees charged by cities to the providers were taxes, and therefore not prohibited.
Qwest Communications, Inc. v. City of Berkeley
In Qwest Communications, Inc. v. City of Berkeley ( — F.3d. —, 2006 WL 62201, C.A.9 (Cal.), January 12, 2006)), Qwest brought action against the City of Berkeley (“City”) to overturn local ordinances that prevented it from conducting excavation and construction work necessary to expand its operations. The local ordinances declared a moratorium on telecommunications infrastructure work, and imposed regulations on those companies’ use of public rights of way.
A federal trial court ruled that the City ordinances were preempted by Section 253 of the FTA, which precludes state and local governments from passing laws that “prohibit or have the effect of prohibiting the ability of any entity” from providing telecommunications service. It also found that the FTA’s “safe harbor” clause did not apply because the City wasn’t merely regulating its public rights of way, but was regulating the companies themselves. The City appealed.
Qwest Corp. v. City of Surprise
In Qwest Corp. v. City of Surprise ( — F. 3d. —, 2003 WL 24225823, 9th Cir. (Ariz.), Jan. 13, 2006)), Qwest sued several Arizona cities- Surprise, Tucson, Globe, Miami and Nogales (“Cities”), seeking to overturn their local telecommunications licensing and franchise ordinances. It also alleged that the Cities’ taxes on telecommunications providers—calculated as percentages of the providers gross revenues and deposited into the cities’ general funds—were “rent” charges and therefore prohibited by the FTA.
After Qwest commenced action in the federal trial court to overturn the City ordinances, the Cities all enacted new ordinances exempting telecommunications providers operating with a territorial franchise from their licensing and franchise requirements. However, they continued to impose the taxes.
Once the new ordinances were enacted, the trial court ruled in favor of the Cities on all claims. First, it ruled that the amended ordinances rendered Qwest’s claims moot. Second, it found that the charges imposed by the Cities were permissible taxes, and not prohibited “rent.” Qwest appealed.
Appellate Court Decisions
In the Berkeley case, the court found that the City’s regulations did have the effect of prohibiting telecommunications service, and therefore were preempted by the FTA. It reviewed a list of requirements imposed by the City on the providers, including compliance with an array of state and federal laws, providing detailed annual written reports, and audits of their books and records. The court found those requirements “patently onerous” and therefore having the disallowed prohibitive effect.
Citing its previous ruling in a case brought by the same company, Qwest Corp v. City of Portland, the court rejected the city’s assertion that Qwest needed to prove that the ordinance had prohibited its operations, and found the FTA preempts any local law that may have such an effect.
The court also rejected the City’s claim that because it was protecting its legitimate interest in regulating public rights of way, its ordinance was allowed under the FTA’s “safe harbor” provision. The court found that the City ordinance regulated an applicant’s technical and legal qualifications, which were not relevant to the City’s interest in its public rights of way. The Berkeley ordinance was therefore preempted by the FTA, the court ruled.
However, in the Arizona case, the court found that because Qwest had suffered no actual injury as a result of these Cities’ newly enacted ordinances, it had no standing to challenge them. It was unswayed by Qwest’s argument that it was harmed by a threat of future liability under the ordinances. “The first standing requirement is that the party suffered an injury in fact,” the court ruled. Furthermore, it found that the new ordinances provided Qwest with the very relief it was seeking–freedom from the Cities’ licensing and franchising requirements–thereby rendering its arguments moot.
Finally, the appellate court agreed with the trial court that the charges imposed by the Cities for the use of their public rights of way were taxes, and not rent which would be illegal under the FTA, because the revenues flowed into the City’s general fund and were not used to promote or regulate any specific party. Therefore, it ruled that the trial court erred by even considering Qwest’s argument on the tax issue since the federal Tax Injunction Act prohibits federal courts from interfering with local tax collections.