City of Hawarden v. US West Communications, Inc., 97-544

Citation590 N.W.2d 504
Decision Date24 March 1999
Docket NumberNo. 97-544,97-544
PartiesCITY OF HAWARDEN, Appellant, v. US WEST COMMUNICATIONS, INC., Appellee.
CourtUnited States State Supreme Court of Iowa

Ivan T. Webber of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellant.

Robert F. Holz, Jr. and Steven L. Nelson of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, and David S. Sather of US West Communications, Inc., Denver, Colorado, for appellee.

William F. Sueppel of Meardon, Sueppel, Downer & Hayes, P.L.C., Iowa City, for amicus curiae Iowa League of Cities.

John R. Klaus, Ames, for amicus curiae City of Ames.

Gary N. Jones of Truax & Jones, Cedar Falls, for amicus curiae City of Cedar Falls.

James E. Walsh, Jr., Waterloo, for amicus curiae City of Waterloo.

Eleanor M. Dilkes, Iowa City, for amicus curiae City of Iowa City.

Michael R. May, Des Moines, for amicus curiae Rural Iowa Independent Telephone Association.

Julie A. Smith, Ankeny, for amicus curiae Iowa Association of Municipal Utilities.

Richard W. Lozier, Jr. of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for amicus curiae AT & T Communications of the Midwest, Inc.

James E. Gritzner and Joan Fletcher of Nyemaster, Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C., Des Moines, for amicus curiae GTE Midwest Inc.

Robert F. Holz, Jr. and Steven L. Nelson of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, and Michael J. Shortley, III, Rochester, New York, for amicus curiae Frontier Communications of Iowa, Inc.

Robert F. Holz, Jr. and Steven L. Nelson of Davis, Brown, Koehn, Shors & Roberts, P.C., Des Moines, for amicus curiae Iowa Telecommunications Association.

Considered by HARRIS, P.J., and LARSON, CARTER, LAVORATO, and NEUMAN, JJ.

NEUMAN, Justice.

This appeal concerns the legality of a Hawarden city ordinance that assesses a percentage-of-revenue fee for the use of public property, including utility rights-of-way. An affected utility, US West Communications, Inc., claimed the ordinance violates state and federal regulatory schemes governing telephone utilities, and the fee amounts to an unauthorized tax. The district court agreed with the utility and dismissed the city's suit to enforce the fee. For the reasons that follow, we affirm.

The parties have stipulated to the operative facts. US West and its predecessors have continuously operated a telephone exchange in the City of Hawarden for more than a century. The utility also holds a certificate of public convenience and necessity issued by the Iowa Utilities Board to furnish local land-line telephone service. See Iowa Code § 476.29(1) (1997).

In 1994, the city's residents approved the establishment of a municipal cable communication utility through which it intends to furnish telephone and other communication services. By resolution passed in the following year, the city terminated its franchise with US West and directed it to remove all its equipment, machinery, lines, cables, etc., from the public rights-of-way, streets and property belonging to the city. The city then passed ordinance 549, requiring the payment of a "user fee" of three percent of the gross revenues of any nonmunicipal utility operating within the city. It is undisputed that the franchise fee will generate revenue over and above any expense incident to the city's administrative or regulatory costs. The excess revenue, characterized by the city as rent, will be deposited in the city's general fund, available for any purpose.

US West has resisted the city's efforts to eject it from the city's rights-of-way and has contested the city's right to collect a franchise fee based on revenues generated by the company. The city eventually sued US West. It sought a judgment "equal to all payments which have not been made as required by said Ordinance No. 549," as well as an order requiring the utility to vacate all public property in the city. The district court denied the relief sought by the city, and this appeal by the city followed.

I. This law action was tried to the court on stipulated facts. Our appellate review, therefore, is limited to assigned error in the trial court's application of law pertinent to the controversy. Iowa Tel. Ass'n v. City of Hawarden, 589 N.W.2d 245, 250 (Iowa 1999); Goodell v. Humboldt County, 575 N.W.2d 486, 491 (Iowa 1998).

II. In their appellate briefs the parties initially debated whether the city could even require US West to secure a franchise. We learned during oral argument that this matter has evidently been resolved. The parties agree the only remaining question is whether, and on what terms, a franchise fee may be imposed.

At the outset US West concedes that the city has the authority to regulate a utility's use of streets, highways, rights-of-way and other public grounds within the city limits to the extent not inconsistent with federal communication law or authority vested in the Iowa Utilities Board. This police power is specifically reserved to the cities in Iowa Code section 476.29(6) and 47 U.S.C. § 253. 1 Implicit in this regulatory power, US West concedes, is the authority to charge and receive a reasonable fee to cover the administrative cost of inspection and supervision. See Iowa Code §§ 364.2(4)(a) (authorizing city to grant franchise for utility service, including telephone); 364.2(4)(f) (limiting collection of "city franchise fee" where city is customer). 2

Here, however, the record reveals the city's proposed fee is related, not to the expense of regulation or any special benefit conferred on the utility, but to gross revenues generated by the utility. Viewed in this light, the district court held, the fee is actually a revenue generating measure, i.e., a tax. See Solberg v. Davenport, 211 Iowa 612, 617-19, 232 N.W. 477, 480, 481 (1930) (license fees exacted in excess of expense incurred for inspection, regulation and supervision are revenue measures arising from taxing power not police power); Newman v. City of Indianola, 232 N.W.2d 568, 573 (Iowa 1975) (tax equals charge to pay cost of government without regard to special benefits conferred); In re Trust of Shurtz, 242 Iowa 448, 454, 46 N.W.2d 559, 562 (1951) (same); see also City of Pella v. Fowler, 215 Iowa 90, 98, 244 N.W. 734, 738 (1932) (city's police power to impose regulatory fees limited to reasonable cost of enforcement).

The city readily concedes it has no power to tax the utility. It is prevented, both by constitutional mandate and statutory preemption, from doing so without legislative authorization. Iowa Const. art. III, § 38A; Iowa Code § 364.3(4). It contends on appeal that what the court has described as a tax is, in fact, rent, legitimately charged for the commercial use of public property. The city's argument, however, is identical to one this court rejected over eighty years ago in City of Des Moines v. Iowa Telephone Co., 181 Iowa 1282, 162 N.W. 323 (1917). Then, as now, the city argued its right to charge rent for the space occupied by the telephone company's poles, wires, and other equipment. It sued for the right to enforce its ordinance and collect the rental due. City of Des Moines, 181 Iowa at 1284, 162 N.W. at 324. The telephone company claimed statutory authorization to occupy the city's streets and alleys, free of charge, subject to the city's police power to regulate the installation and maintenance of the facilities. Id. at 1284-87, 162 N.W. at 324-25. It relied on the following legislative authorization which remains virtually unchanged (but for renumbering) today:

[A]ny person or company may construct a telegraph or telephone line along the public highways of this state, or across the rivers or over any lands belonging to the state or to any private individual, and may erect the necessary fixtures therefore: Provided, that when any highway along which said line has been constructed shall be changed, said person or company shall, upon ninety days' notice in writing, remove said line to said highway as established.... Such fixtures must not be so constructed as to incommode the public in the use of any highway or the navigation of any stream; nor shall they be set up on the private grounds of any individual without paying him a just equivalent for the damages he thereby sustains.

Id. at 1285, 162 N.W. at 324 (quoting McClain's Annotated Code 1882, at 374, 375; Code of 1873, as amended by 1882 Iowa Acts ch. 104); accord Iowa Code §§ 477.1, .3.

In City of Des Moines, this court rejected the city's contention that it owns title to its streets in fee and therefore holds the right, as any private party, to exact rental for their use. The court made plain the city holds the fee in trust for the public. "[I]t is a mistake," this court said, "to suppose that, where the fee of the streets is in the city, in trust for the public, the city is constitutionally and necessarily entitled to compensation the same as a private proprietor holding the fee." City of Des Moines, 181 Iowa at 1291, 162 N.W. at 326. In short, this court held the above-quoted statute constituted a grant of legislative authority and "under no theory is the city entitled to recover from the telephone company the rental value of its streets used by said company with its poles and wires." Id. at 1311, 162 N.W. at 331.

III. That brings us to the heart of the parties' disagreement. The city contends that old cases and longstanding statutes must be interpreted in the light of new technologies an environment of increased competition, and a municipal authority freed by the advent of home rule. US West counters that the principles underlying the City of Des Moines case are consistent with state and federal statutory schemes governing telephone utilities today, as well as modern decisions interpreting those statutes, and were properly applied by the district court. We agree.

To the extent that Hawarden's ordinance 549 purports to require a revenue-based "user fee" as a prerequisite to providing telephone...

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