Tcg New York, Inc. v. City of White Plains

• Citation: 305 F.3d 67
• Decision Date: 12 September 2002
• Docket Number: Docket No. 01-7255(XAP).,Docket No. 01-7213(L).
• Parties: TCG NEW YORK, INC., TC Systems, Inc. and Teleport Communications d/b/a TCNY, Plaintiffs-Appellants-Cross-Appellees, v. CITY OF WHITE PLAINS, Defendant-Appellee-Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

305 F.3d 67

TCG NEW YORK, INC., TC Systems, Inc. and Teleport Communications d/b/a TCNY, Plaintiffs-Appellants-Cross-Appellees, v. CITY OF WHITE PLAINS, Defendant-Appellee-Cross-Appellant.

Docket No. 01-7213(L).

Docket No. 01-7255(XAP).

United States Court of Appeals, Second Circuit.

Argued: December 3, 2001.

Decided: September 12, 2002.

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Peter D. Keisler, Sidley Austin Brown & Wood (Stephen B. Kinnaird, Sidley Austin Brown & Wood, Robert G. Scott, Jr., and T. Scott Thompson, Cole, Raywid & Braverman, Mark C. Rosenblum, Stephen C. Garavito, and Teresa Marrero, AT & T Corp., Basking Ridge, NJ, on the brief), Washington, DC, for Plaintiffs-Appellants-Cross-Appellees.

Philip W. Horton, Arnold & Porter, (Anthony Boccanfuso, Arnold & Porter, New York, NY, Robert M. Cooper, Arnold & Porter, on the brief) Washington, DC, for Defendant-Appellee-Cross-Appellant.

John E. Ingle, Deputy Associate General Counsel (Rodger D. Citron, Counsel, Federal Communications Commission, Charles A. James, Assistant Attorney General, John M. Nannes, Acting Assistant Attorney General, Catherine G. O'Sullivan, and Nancy C. Garrison, Attorneys, United States Department of Justice, Antitrust Division, on the brief) Washington, DC, for Amici Curiae Federal Communications Commission and the United States.

Michael R. Hepworth, Piper, Marbury, Rudnick & Wolfe LLP (David A. Handzo and Janis C. Kestenbaum, Jenner & Block, LLC, Washington, DC, Thomas F. O'Neil III, Chief Legal Counsel, and V. Nicole Bynum, WorldCom, Inc., Washington, DC, on the brief) New York, N.Y. for Amicus Curiae WorldCom, Inc. in support of TCG.

Michael D. Hess, Corporation Counsel of the City of New York(Stephen J. McGrath and Bruce Regal, on the brief) New York, NY, for Amicus Curiae City of New York in support of City of White Plains.

Andrew Brick, Counsel, Albany, NY, for Amicus Curiae New York State Conference of Mayors and Municipal Officials in support of City of White Plains.

William Malone, Miller & Van Eaton (Nicholas Miller and Matthew C. Ames, Miller & Van Eaton, Henry W. Underhill, General Counsel and Executive Director, and Lani L. Williams, Associate Counsel, International Municipal Lawyers Association, Danielle DeMers, Office of the Town Attorney, Town of Colonie, Newtonville, NY, on the brief) Washington, DC, for Amici Curiae Local Governments in support of City of White Plains.

Before: WALKER, Chief Judge, NEWMAN and F.I. PARKER, Circuit Judges.

JOHN M. WALKER, JR., Chief Judge.

Plaintiffs TCG New York, Inc., TC Systems, Inc., and Teleport Communications d/b/a TCNY (collectively, "TCG") brought an action against the City of White Plains (the "City" or "White Plains") alleging that White Plains's franchising ordinance and proposed franchise agreements violated § 253 of the Telecommunications Act of 1996 ("TCA"), 47 U.S.C. § 253 ("§ 253"), the Fourteenth Amendment, and state law. The District Court for the Southern District of New York (Barrington D. Parker, Jr., then-District Judge) decided the case on stipulated facts and held in part for TCG and in part for the City. Both sides appealed. We affirm in part and reverse in part.

BACKGROUND

TCG, a provider of telephone and telecommunications services, is a group of wholly-owned subsidiaries of Teleport Communications Group, itself a wholly-owned subsidiary of AT & T Corporation. For purposes of this appeal, TCG can be treated as a unitary entity. In order to provide telecommunications services within White Plains, TCG sought the City's approval to construct telecommunications facilities and place other equipment within the City's public rights-of-way. In particular, TCG sought permission to build new conduits and to run a network of fiber optic cables through both these new conduits and preexisting ones in the City. Although TCG negotiated with the City starting in early 1992, the relevant negotiations are those that took place after December 1, 1997, when the Common Council of the City passed an ordinance providing a process by which telecommunications carriers could gain approval to place equipment in the City's rights-of-way. See White Plains Municipal Code, Telecommunications Franchising and Licensing, Articles 1-3 (the "Ordinance").

TCG filed an application for a revocable license in April 1998. Under the City's scheme, revocable licenses govern limited uses of rights-of-way for internal operations of a business, whereas franchises govern uses of rights-of-way on a broader scale to sell or resell telecommunications services to residents of the City. See Ordinance, §§ 1-1-07, 1-1-12, 2-1-02, 2-1-06, and 2-1-07. In June 1998, the City's Corporation Counsel suggested that TCG apply for a franchise, rather than a revocable license, and provided TCG with a copy of a franchise agreement it had reached with one of TCG's competitors. After some negotiations over the terms of a franchise agreement, TCG submitted an application for a franchise in February 1999 and effectively discontinued pursuing a revocable license. In June 1999, TCG filed this lawsuit, alleging that White Plains's Ordinance and the proposed franchise agreement violated its rights under the TCA, the Fourteenth Amendment, and state law. In August 1999, White Plains made a new franchise agreement proposal (the "August Proposal"). This case concerns the validity of both the Ordinance and certain provisions in the August Proposal as amended.

Section 253 of the TCA provides, in relevant 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 [47 U.S.C. § 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) of this section, the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correct such violation or inconsistency.

47 U.S.C. § 253.

The Ordinance forbids any telecommunications provider from using the rights-of-way of the City without obtaining a franchise or revocable license from the Common Council and that incorporates the requirements of the Ordinance. See Ordinance, §§ 2-1-01, 2-1-03. Applications for franchises are required to contain numerous disclosures. Some of these disclosures, which relate to basic management of the rights-of-way, are not disputed. See Ordinance, § 2-3-02(i), (iii), (iv), (v), and (viii).

Disclosures required by the Ordinance that are challenged in this action include a description of the telecommunications services that the franchisee seeks to provide; the proposed financing plans for constructing and operating the applicant's telecommunications system; and a description of the "legal, financial, technical and other appropriate qualifications of the applicant." Id. at (ii), (vi), and (vii). In addition to these disclosures, the Ordinance requires that franchise agreements contain terms that specify what telecommunication services are to be offered, require the franchisee to maintain accurate records, and grant the City a right to inspect records and facilities. See Ordinance, § 2.9.01(ii), (viii), and (vi).

The Ordinance also contains a variety of substantive requirements. Franchises may not be transferred without the prior consent of the City. See id. at (xii). Franchise agreements must contain any additional provisions the City deems "necessary or appropriate in furtherance of the public interest." Id. at (xvii). Similarly, before approving a franchise, the Common Council may consider the qualifications of an applicant, whether the franchise agreement "protect[s] the public interest," and "any other public interest factors." Ordinance, § 2-7-01(ii), (vi), and (vii).

TCG's attack is not confined to the Ordinance, but also challenges a number of the terms contained in the August Proposal. Of central importance to this appeal is a fee provision that requires TCG to pay five percent of its annual gross revenues from White Plains business to the City. See August Proposal, § 8.1(a). The fee provision also sets a minimum annual fee and requires TCG to provide White Plains with free conduit space for its own use if TCG constructs new conduits. Id. at §§ 8.1(b), 8.2. White Plains also included in its August Proposal a "most favored vendee" clause, whereby TCG is required to offer services to the City on terms that are at least as good as the terms TCG offers to any other governmental or non-profit customer in Westchester County. Id. at § 2.7. To ensure that franchise fees would be paid, White Plains also included provisions requiring a secondary guaranty from AT & T, TCG's corporate parent, to pay any fees that TCG defaults on and requiring TCG to maintain financial records at a fixed location available for the City's inspection. Id. at §§ 16, 12.1, 12.2 and 8.5.

Beyond the foregoing financial provisions, the August Proposal precludes...