Diginet, Inc. v. Western Union ATS, Inc., 91 C 0156.

• Decision Date: 27 February 1991
• Docket Number: No. 91 C 0156.,91 C 0156.
• Citation: 759 F. Supp. 1285
• Parties: DIGINET, INC., a Nevada, corporation, Plaintiff, v. WESTERN UNION ATS, INC., a Delaware corporation, and City of Chicago, Defendants. CITY OF CHICAGO, an Illinois municipal corporation, Cross-Claimant, v. WESTERN UNION ATS, INC., a Delaware corporation, Cross-Defendant.
• Court: U.S. District Court — Northern District of Illinois

759 F. Supp. 1285

DIGINET, INC., a Nevada, corporation, Plaintiff, v. WESTERN UNION ATS, INC., a Delaware corporation, and City of Chicago, Defendants.

CITY OF CHICAGO, an Illinois municipal corporation, Cross-Claimant, v. WESTERN UNION ATS, INC., a Delaware corporation, Cross-Defendant.

No. 91 C 0156.

United States District Court, N.D. Illinois, E.D.

February 27, 1991.

COPYRIGHT MATERIAL OMITTED

Dan R. Sampen, Jacob J. Meister, Martin, Craig, Chester & Sonnenschein, Chicago, Ill., for Diginet, Inc.

Thomas F. Geselbracht, John E. Mitchell, Rudnick & Wolfe, Chicago, Ill., Patricia N. Young, MCI Communications Corp., Washington, D.C., for Western Union ATS, Inc.

Stuart D. Fullerton, Ruth M. Moscovitch, Emily Nicklin, Kelly Raymond Welsh, Bennett W. Lasko, City of Chicago, Law Dept., Chicago, Ill., for City of Chicago.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND INJUNCTION ORDER

HART, District Judge.

This matter is before the court on the motion of defendant and cross-plaintiff City of Chicago's ("the City") motion for a preliminary injunction to enjoin the defendant Western Union ATS, Inc. ("ATS") from expanding its existing fiber optic network under the streets of Chicago. A hearing was held on the motion at which the parties to the motion submitted documentary evidence and testimony.

I. Nature of the Case

Since the breakup of the AT & T network, there has been growth in the number of companies engaged in telecommunications service using fiber optic cables. Fiber optic cables are bundles of hair-thin glass fibers through which laser light-beams carry communications, and computer and other data at high speed. The cables are small in diameter and can be squeezed into small conduits. Their capacity and conducting speed are greater than other conducting materials and are more secure from interception and interference. A common purpose is to provide hook-ups between long distance carriers (such as AT & T, MCI, U.S. Sprint, Allnet, etc.) and high-volume-usage customers. Obtaining such hook-ups avoids the expense of using the Bell System's local switching exchanges.

This suit was brought by Diginet, Inc. ("Diginet"), a corporation engaged in the business of providing fiber optic communications. ATS entered into a number of contracts with Diginet utilizing ATS's system in Chicago. The contracts require that Diginet pay ATS for, among other things, its use of rights-of-way.

The City advised Diginet that ATS does not have authority to use street rights-of-way for fiber optic cables and informed Diginet that it must obtain authorization from the City to complete the construction and operation of its system connections. ATS denied to Diginet that it lacked authority to use the rights-of-way for fiber optic purposes, demanded that Diginet continue to pay it in accordance with its contracts and threatened to cut off service if Diginet failed to pay pursuant to the terms of the Diginet-ATS contracts. Diginet withheld payments, filed a declaratory judgment suit and sought a preliminary restraining order. Diginet and ATS have resolved issues relating to immediate disconnection.

The City filed a cross-claim against ATS. The City seeks a declaration as to ATS's right to occupy street rights-of-way and damages. The City has filed a motion for a preliminary injunction to enjoin ATS "from installing additional fiber optic cable network on, under or over the public ways of the City" pending resolution of this case. The City contends that the existing fiber optic cable was constructed by Western Union Corporation ("Western Union") and would be expanded by ATS in violation of a City ordinance that provides that no person shall install or maintain any wire, pipes or conduit underneath the public way without having obtained specific authority by ordinance passed by the City Council.

ATS claims that (1) it is a "telephone company" within the meaning of the Telephone Act of 1903, Ill.Rev.Stat., ch. 134 §§ 17-20; (2) the Telephone Act empowers it to exercise the power of eminent domain over City streets by giving the City a ten-day notice (which it did) of its intention to install additional cable under the streets; (3) the City may not impose or charge for use of the streets in excess of any sum reasonable for regulatory purposes (which ATS says the City is attempting to do); and (4) ATS will suffer irreparable harm if it is not allowed to expand its system for service to its customers.

The City responds that (1) ATS has been given no public utility authority from the Illinois Commerce Commission, denies that it is a public utility and ATS is not a telephone company within the meaning of the Telephone Act; (2) the Telephone Act does not override the power of municipalities to control private use of the public ways or permit the use of a ten-day notice; (3) ATS is precluded under the doctrine of res judicata by a judgment against its predecessor in interest, Western Union, from contesting the City's right to exclude ATS from the public way; and (4) ATS is a trespasser and the City would be irreparably harmed if ATS is allowed to continue installing unauthorized cable under the City streets.

The City seeks to maintain the status quo pending a determination of this lawsuit. The City does not seek to prevent ATS from entering the public way solely for the purpose of maintaining or repairing its existing fiber optic system.

II. Findings of Fact

Based on the facts admitted in the pleadings and the evidence submitted at a hearing, the court finds the facts to be as follows:

1. Plaintiff Diginet is a Nevada corporation with its principal place of business in Milwaukee, Wisconsin. Cross-claimant City of Chicago is an Illinois municipal corporation. Defendant and cross-defendant ATS is a Delaware corporation with its principal place of business in Richardson, Texas. The amount in controversy exceeds $50,000. The court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a).

2. ATS owns and operates a network of fiber optic cables within the City. ATS has not obtained any specific permission or authority from the City to install fiber optic cables in the public way. The fiber optic cables were installed by Western Union.

3. ATS uses its fiber optic network to provide telecommunications services to selected customers for a fee. The rates of the services provided by ATS are not regulated. ATS leases its fiber optic cables, or transmission capacity in its fiber optic cables, for use by its customers, such as Diginet, to directly transmit calls to long distance telecommunications carriers without using the local exchange services provided by the regulated local exchange carrier.

4. Western Union did not seek permission or authority from the City prior to installing fiber optic cables. However, Western Union had authority to operate a telegraph system under the City streets pursuant to non-assignable rights granted by the Chicago Municipal Code to telegraph companies. Western Union operated the fiber optic system as a part of its Advance Transmission Division telecommunications business.

5. In 1986, the City notified Western Union that it could not maintain fiber optic cables in the public way for telecommunications without City Council approval. Thereafter, the City and Western Union entered into negotiations, which continued for two years without producing an agreement. In late 1988, Western Union filed suit against the City in the Circuit Court of Cook County, Chancery Division. Western Union claimed that the City had no authority to require compensation for the construction and operation of its fiber optic network in the public way. Western Union sought to enjoin the City from interfering with the construction and operation of its fiber optic cable system. This case was entitled Western Union Corp. v. Parrish & the City of Chicago, No. 88 CH 9963.

6. The Second Amended Complaint filed by Western Union in the Parrish case for injunctive relief and damages is based upon rights Western Union claimed by virtue of the "Illinois Telephone and Telegraph Act. Ill.Rev.Stat. (1985) ch. 134, and Chapter 189 of the Municipal Code of the City of Chicago" (¶ 11). Western Union described itself as in the telecommunications business by virtue of rights originally granted to it under state statutes and the Municipal Code to telegraph companies. Western Union described the dispute between itself and the City as relating to its right to install fiber optic cables without specific permission from the City and as a dispute with the City about the level of any regulatory fee. Although Western Union did not describe itself as a telephone company, it relied upon state statutory provisions, including those cited by ATS, and specifically cited in its complaint AT & T v. Village of Arlington Heights, 174 Ill.App.3d 381, 124 Ill.Dec. 109, 528 N.E.2d 1000 (1st Dist. 1988), (a case strongly relied on by ATS) for the proposition that the home rule powers of a municipality are not unlimited.

7. A six-day bench trial was conducted before the Circuit Court in early 1990. After the trial and post-trial briefing were completed, but before the court rendered a decision, Western Union moved to voluntarily dismiss its Second Amended Complaint on the ground that it had sold its fiber optic network to ATS, and that the litigation was thus rendered moot.

8. The City opposed Western Union's motion to dismiss. The City argued that the case was not mooted by the transfer of the fiber optic network and moved to substitute ATS as Western Union's successor in interest and assignee. Western Union's motion to voluntarily dismiss and the City's motion to substitute ATS were heard on September 10, 1990. Attorneys for ATS were present at the September 10 hearing. ATS would not agree to be substituted as a party for Western Union. On September 14, 1990, the motion to add or substitute ATS was denied. The temporary restraining order entered against the City on December...