Bellsouth v. City of Memphis
| Decision Date | 12 July 2004 |
| Docket Number | No. W2003-01047-COA-R3-CV.,W2003-01047-COA-R3-CV. |
| Parties | BELLSOUTH TELECOMMUNICATIONS, INC., v. CITY OF MEMPHIS, TENNESSEE. |
| Court | Tennessee Supreme Court |
Louis F. Allen and Earle J. Schwartz of Memphis; Guy M. Hicks of Nashville; Dorian S. Denburg of Atlanta, Georgia; John E. Muench and Robert M. Dow, Jr. of Chicago, Illinois, for Appellant, BellSouth Telecommunications, Inc.
Robert L.J. Spence, Jr. and Monika L. Johnson; Allan J. Wade and Lori Hackleman Patterson of Memphis; Clarence A. West of Austin, Texas, for Appellee, City of Memphis, Tennessee.
Telecommunications corporation appeals trial court's grant of summary judgment to city, alleging that trial court incorrectly determined that city ordinance imposing a charge of five percent of gross revenue of the corporation was not inconsistent with T.C.A. § 65-21-103 or any other provision of Tennessee law. We reverse.
This case involves cross-motions for summary judgment filed by the appellant, BellSouth Telecommunications, Inc. ("BellSouth"), and the appellee, the City of Memphis, Tennessee ("the City"), regarding the validity and enforceability of city Ordinance No. 4404. The pertinent factual history is summarized by the parties in their joint stipulations of fact:
2. In January 1879, the Tennessee General Assembly passed the Taxing District Act. Acts Tenn. 1879, Chapter 11, § 1....
3. Pursuant to the Acts of 1879, Chapter 11, Sec. 3, the State of Tennessee made the following grant to the Taxing District of Shelby County (now City of Memphis):
The governing authority shall have the power to repair, and keep in repair, streets, sidewalks and other public grounds and places [in the taxing district]; to open and widen streets, to change the location [of] or to close the same, and to lay off new streets and alleys when necessary; and to have and exercise entire control over all streets and other public property of the Taxing District, as well [as] that within and without the Taxing District.
Acts Tenn. 1879, Chapter 11, Sec. 3; Memphis City Charter Sec. 481.
4. In 1879, the Legislative Council of the Taxing District entered into an agreement with Samuel T. Carnes ("Carnes")....
5. In 1881, Carnes incorporated Memphis Telephone and Electric Co. and in 1882, Carnes assigned all of the assets of his telephone business to Memphis Telephone & Electric Co. In 1883, Cumberland Telephone & Telegraph Co. ("Cumberland"), a Kentucky corporation, acquired all of the assets of Memphis Telephone & Electric Co.
6. In 1884, the Tennessee General Assembly passed legislation which was codified at Miliken & Vertrees Tennessee Code, Chapter 8, Section 1535 (1884)....
7. In 1885, the Legislature enacted Chapter 66, Acts of 1885 (now codified at T.C.A. § 65-21-105, 106, [and] 201)....1
8. In 1891, the Tennessee General Assembly restored the name "City of Memphis" by Acts of 1891, Chapter 229, §§ 1-2....
9. From time to time between 1885 and 1900, Cumberland erected its poles and strung its wires in the City in order to expand its telephone system.
10. In June 1900, the Legislative Council adopted a "Conduit Ordinance[."]2
11. Between 1900 and 1944, the Conduit District established by the Conduit Ordinance was expanded from time to time by resolution of the Legislative Council/Board of Commissioners.
12. On February 25, 1902, the City passed an ordinance charging telephone and telegraph companies doing business in Memphis a pole rental of $3 per pole per year. In June 1902, the City filed suit against Cumberland to collect this pole rental.
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14. On July 16, 1903, [t]he City and Cumberland resolved the 1902 litigation in a settlement agreement dated July 16, 1903, signed by Cumberland and the City....
15. In 1907, the Tennessee General Assembly enacted the Talbert Bill, now codified at T.C.A. § 65-21-103.3
16. In March 1913, Cumberland agreed by letter to provide additional telephone equipment to the City of Memphis....
17. In 1915, the City of Memphis and Cumberland entered into an agreement concerning the provision of phone service to the City....
18. In 1919, Cumberland agreed to purchase the exchange and assets of the Memphis Telephone Co.
19. In June 1926, Southern Bell Telephone Co. qualified to do business in Tennessee. Cumberland Telephone & Telegraph Co. conveyed all of its property and assets to Southern Bell and ceased doing business.
20. In July and August 1933, there was an exchange of correspondence between Memphis Mayor Watkins Overton and Southern Bell regarding the 1903 ordinance.
21. On June 27, 1944, the Board of Commissioners of the City of Memphis enacted Ordinance No. 427.4 On July 5, 1944, Southern Bell filed its acceptance of this ordinance....
22. In September 1944, the Railroad and Public Utilities Commission approved the Ordinance.
23. In 1961, the Tennessee General Assembly passed Chapter 123 of the Public Acts of Tennessee 1961, amending T.C.A. [§] 65-405. Acts 1961, ch. 123, § 1, codified at T.C.A. § 65-4-105(e).5
24. In February 1962, the Board of Commissioners enacted Ordinance No. 954. Southern Bell filed its acceptance of this ordinance....6
25. In April 1962, the Public Service Commission approved the ordinance.
26. In 1962, the City of Memphis filed a lawsuit seeking to prevent Southern Bell from passing through to its Memphis customers, the fee collected pursuant to the 1962 Ordinance. That lawsuit was resolved by the Sixth Circuit in City of Memphis, Tenn., v. Southern Bell Tel. Co., 316 F.2d 535 (6th Cir.1963).
27. In 1966, the City of Memphis adopted Home Rule pursuant to Art. 11, Sec. 9, of the Tennessee Constitution.
28. South Central Bell Telephone Company was formed in 1968. In May 1968, Southern Bell and South Central Bell entered into a plan of reorganization under which South Central Bell would acquire the assets and liabilities and conduct the business formerly carried on by Southern Bell in Alabama, Kentucky, Louisiana, Mississippi and Tennessee. On July 1, 1968, South Central Bell succeeded to the assets, liabilities and business of Southern Bell Telephone and Telegraph Company located, inter alia, in Memphis, Tennessee.
29. In July 1980, the [Memphis] City Council passed Ordinance No. 3037 on third and final reading.7 South Central Bell filed its acceptance of Ordinance No. 3037....
30. The City and South Central Bell/BellSouth operated under the 1980 Ordinance until it expired, after a one year extension, in 2001.
31. In December 1991, South Central Bell Telephone Co. changed its corporate name to BellSouth Telecommunications Co., Inc.
32. In 1996, Congress passed the Federal Telecommunications Act of 1996, codified at 42 U.S.C. § 251, et seq.
33. In 1996, the Memphis City Council passed Ordinance No. 4404....
34. In May 2000, and again in June 2001, BellSouth sent two letters to the City of Memphis....
35. In July 2000, the [Memphis] City Council enacted Substitute Ordinance No. 4783 extending Ordinance [No.] 3037 for a term of 12 months or until BellSouth agreed to accept Ordinance No. 4404, whichever was sooner....
36. The City has placed the revenues that it has received under Ordinance No. 3037 and as extended into its General Fund.
The ordinance at the heart of the dispute in this matter, Ordinance No. 4404 ("Ordinance 4404"), mandates that a telecommunications service provider obtain or enter into a franchise agreement with the City for the right "to construct, maintain and operate a telecommunications system [in the public rights-of-way]... within the City of Memphis." Pursuant to the franchise agreement, a telecommunications service provider is required to pay to the city as "general compensation," an amount equal to five percent of the corporation's "gross revenues for each quarter of a compensation year...." The precise language of the ordinance reads in pertinent part as follows:
Sec. 10-78. Grant of franchise.
(1) No person shall acquire, construct, expand, reconstruct, maintain, use and operate in, along, across, on, over, through, above and under the public streets, alleys and rights-of-way of the city, a telecommunications system without first obtaining a non-exclusive, revocable franchise from the city. Except to the extent that the federal or state government acquires or assumes exclusive jurisdiction over the regulation of fiber optic or other telecommunications franchises. Grantee agrees that it shall not now or at any time after a franchise agreement is granted challenge the city's right to regulate any grantee's use of the public rights-of-way or to be compensated, as hereinafter provided, for the use of public rights-of-way in any state or federal court. Accordingly, any franchise granted hereunder shall remain in full force and effect as a binding contract between the grantee and the city. Notwithstanding the foregoing[,] [g]rantee is not prohibited from challenging the city's arbitrary and capricious exercise of its police powers in the regulation of any franchisee's use of the public rights-of-way hereunder.
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(2) Franchise grant conditions, terms.
a. A franchise granted hereunder ... shall be granted only by ordinance....
b. Grantee shall not provide cable services or operate a cable system as defined in the Cable Television Consumer Protection and Competition Act of 1992 (47 U.S.C.A. § 521, et seq., as amended) or as recognized by the FCC without first obtaining a separate cable franchise from the city and shall not allow the use of the system by a cable system that has not been granted a franchise by the city. Nor shall any provider of cable services or grantee of cable television service operate or provide a telecommunications franchise pursuant to this division, unless a...
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