City of Rome, N.Y. v. Verizon Communications, Inc.

• Decision Date: 25 March 2004
• Docket Number: Docket No. 03-7195.
• Citation: 362 F.3d 168
• Parties: The CITY OF ROME, NEW YORK, Plaintiff-Appellant, v. VERIZON COMMUNICATIONS INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

362 F.3d 168

The CITY OF ROME, NEW YORK, Plaintiff-Appellant, v. VERIZON COMMUNICATIONS INC., Defendant-Appellee.

Docket No. 03-7195.

United States Court of Appeals, Second Circuit.

Argued: November 3, 2003.

Decided: March 25, 2004.

COPYRIGHT MATERIAL OMITTED

James S. Rizzo, Corporation Counsel, for Plaintiff-Appellant City of Rome, Rome, New York.

Andrew G. McBride, Wiley Rein & Fielding LLP (Helgi C. Walker and Eve Klindera Reed, of counsel), for Defendant-Appellee Verizon Communications Inc., Washington, D.C.

Henry W. Underhill, Jr. (Lani L. Williams, of counsel), for amici curiae The International Municipal Lawyers Association The National League of Cities, The National Association of Telecommunications Officers and Advisors, The National Association of Counties, The United States Conference of Mayors, and The New York State Conference of Mayors, Washington, D.C.

Before: McLAUGHLIN and KATZMANN, Circuit Judges, SCHEINDLIN, District Judge¹.

Judge SCHEINDLIN dissents in a separate opinion.

KATZMANN, Circuit Judge.

This case calls upon us to examine the interplay of local, state, and federal laws as they affect the authority of a city to negotiate franchise agreements with telecommunications companies. More specifically, we decide to what extent, if any, Section 253 of the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56, confers federal jurisdiction upon cases implicating it that are initially brought in state court. Plaintiff appeals from a decision and order of the United States District Court for the Northern District of New York (Hurd, J.) granting summary judgment to defendant Verizon Communications Inc., on the ground that the Telecommunications Act preempted the franchise agreement that the City of Rome sought to compel Verizon to negotiate. For the reasons articulated below, we vacate the district court's decision for lack of subject matter jurisdiction and remand the district court with instructions to return the case to state court.

I. BACKGROUND

The late nineteenth and early twentieth centuries witnessed a period of substantial growth in telephone usage and the dissemination of telephone service throughout not only the more populous parts of the United States but rural areas as well. See Claude S. Fischer, America Calling: A Social History of the Telephone to 1940, at 86-121 (1992). With this expansion arrived new laws governing the relation between localities and telephone service providers. Id. at 123 ("Telephone men needed town governments' permission to conduct business, plant poles, and to string wire across streets. In return, the companies often provided free telephone service for City Hall, agreed to put caps on rates, and sometimes paid bribes."). States also entered into the enterprise, some assuming control over telephone regulation by setting up new state-wide agencies. See id. at 134 (explaining how "[t]he establishment of the California Public Utilities Commission in 1911 soon usurped ... regulatory powers from the town, thereby defusing most local controversies about telephony").

New York was not exempt from this telephonic and legislative turmoil. Under Section 27 of the New York Transportation Corporations Law ("TCL"), the slightly modified descendent of a 1909 statute, a telephone or telegraph corporation may construct and maintain fixtures for its lines under the city streets, "provided that such corporation shall, before laying any such line in any city ... of this state, first obtain from the common council of cities, or other body having like jurisdiction therein ... permission to use the streets within such city, village or town for the purposes herein set forth." N.Y. Trans. Corp. Law § 27. In May of 1912, the common council of the City of Rome (the "City") adopted an ordinance permitting the New York Telephone Company (the "Company") and its successors and assigns to lay and maintain lines on three streets within the City's boundaries. The ordinance set forth certain conditions for the grant, requiring the Company to execute and deliver a $10,000 bond to indemnify the City against any claims for damages arising out of construction activities, mandating that the Company permit the City to use its underground conduits, directing that the operations be conducted under the supervision of the City's Board of Public Works, and providing that the rights to build would be forfeited unless exercised by 1922. The Company agreed to these terms in an acceptance dated May 31, 1912. Thirty years later, in 1942, the City granted a permit pursuant to Section 27 of the TCL allowing the Company to "construct, reconstruct, reinforce, operate, maintain and repair underground conduits... [and] from time to time to construct, lay and use lines of electrical conductors... in, on, along, under and across all of the various streets, roads, avenues and highways, or parts thereof, in the City of Rome ... excepting the Corporation Tax District...." Permit issued by Rome to the Company under § 149 of the Highway Law (Jan. 14, 1942).

In the interim, New York State, in 1913, enacted legislation limiting the duration of franchises, N.Y. Gen. City Law § 23(2)(b), and, in 1921, incorporated this alteration into the City's Charter. Laws of New York 1921, chap. 679, sec. 33. Section 33 of the law that continues to serve as the City's Charter specifies that:

No franchise shall be granted or be operated for a period longer than fifty years. The common council may, however, grant to the owner or lessees of an existing franchise, under which operations are being carried on, such additional rights or extensions in the street or streets in which the said franchise exists, upon such terms as the interest of the city may require ....

Id. This provision formed the backdrop for the City's enactment, in 1949, of an additional ordinance that expanded the 1912 grant while continuing to impose similar requirements upon the Company.

Much later in the century, Congress substantially altered the landscape of telephone and cable services with the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56, designed to broaden the range of providers given access to the market while at the same time permitting states and localities to retain some control over their relations with telecommunications companies.

In May of 2001, the City contacted Verizon Communications Inc. ["Verizon"], the parent company of New York Telephone's successor, claiming that its 1949 franchise had expired in 1999, and that Verizon thus bore an obligation to commence negotiations with the City to renew its franchise. Letter from Rome to Verizon of May 17, 2001. Rome had already negotiated such agreements with several other telecommunications providers, including Adelphia Business Solutions and Fibertech Networks, L.L.C. A lengthy and contentious correspondence ensued between Verizon and the City. During this exchange, Verizon maintained that the original franchise, once granted, had become "a vested, indefeasible property right" of the franchisee, and, furthermore, that Section 253 of the Federal Telecommunications Act of 1996 limited municipalities' authority to manage their rights-of-way through franchising. Letter from Verizon to Rome of June 5, 2001. The City continued to insist upon its rights under state and local laws and responded that nothing in the Telecommunications Act would bar it from obtaining "reasonable compensation" for the use of its rights-of-way. Letter from Rome to Verizon of June 25, 2001. Rome also threatened to bar Verizon from accessing its facilities unless the Company agreed to commence negotiations. Letter from Rome to Verizon of Sept. 28, 2001.

Rather than resorting to such extreme action when its efforts to compel negotiations proved unsuccessful, the City instead brought suit against Verizon in state court in March, 2002. The City sought a "declaration of the rights of the parties with respect to the need to renegotiate and renew the Franchise previously obtained by Defendant by virtue of being a successor-in-interest to the Original Grantee." Compl. Verizon promptly removed the case to federal court, claiming that "[t]he adjudication of [Rome's] state law claims turns entirely on the resolution of several important questions of federal law." Notice of Removal ¶ 6.

The City did not attempt to remand, and the district court assumed jurisdiction. Verizon then moved to dismiss. After the parties submitted materials outside of the pleadings, including examples of the franchise agreements that the City had negotiated with other telecommunications providers, the district court converted Verizon's motion into one for summary judgment. Among the terms of the franchise agreements Rome provided were specifications for the placement of underground lines and the location of poles, a clause requiring that the companies carry liability insurance to indemnify the City, a provision limiting assignments of the franchise, and a section imposing fees — including a "right-of-way" fee amounting to four percent of the companies' annual gross revenues. On the basis of these documents, the district court ruled in favor of Verizon.² City of Rome v. Verizon Communications, Inc., 240 F.Supp.2d 176 (N.D.N.Y.2003). The court held that the City's agreement violated Section 253(a) of the Telecommunications Act because it had "the effect of prohibiting [Verizon] from providing interstate or intrastate telecommunications services," and decided, as a result, that Verizon "is under no obligation to negotiate with the City under the terms of the proposed Agreement." Id. at 181. This appeal followed.

II. ANALYSIS

The basis for federal jurisdiction in this litigation is rather murky. Although the parties both consented to jurisdiction below, the fact that the City agreed to litigate against Verizon in federal court does not clear away all jurisdictional impediments. As we have often observed, "it is well settled...