Montana-Dak. Util. Co. v. City of Billings

Decision Date03 December 2003
Docket NumberNo. 01-862.,01-862.
Citation2003 MT 332,80 P.3d 1247
PartiesMONTANA-DAKOTA UTILITIES CO., a Division of MDU Resources Group, Inc.; The Montana Power Company; and Yellowstone Valley Electric Cooperative, Inc., Plaintiffs and Respondents, and Touch America, Inc., Intervenor and Respondent, v. The CITY OF BILLINGS, Montana, Defendant and Appellant.
CourtMontana Supreme Court

For Appellant Brent Brooks, City Attorney, Billings, Montana, Joseph Van Eaton (argued), Miller & Van Eaton, P.L.L.C., Washington, D.C.

For Respondents Elizabeth Baker (argued) and John Alke, Hughes, Kellner, Sullivan & Alke, Helena, Montana, Patrick T. Fleming, Butte, Montana (Intervenor).

For Amici David L. Nielsen, City Attorney, Helena, Montana (Montana League of Cities and Towns), Maxon R. Davis, Davis, Hatley, Haffeman & Tighe, Great Falls, Montana Electric Cooperatives Ass'n; Montana Independent Telecommunications System; and Montana Telecommunications Ass'n.

Justice W. WILLIAM LEAPHART delivered the Opinion of the Court.

¶ 1 Public utilities and telecommunications corporations with transmission lines, cables, pipelines or other facilities located within public rights-of-way challenge a franchise fee established by ordinance in Billings, Montana. The Thirteenth Judicial District Court, Yellowstone County, held that the franchise fee constitutes an illegal tax. We affirm.

¶ 2 The issue on appeal is whether a franchise fee based on 4 percent of gross annual revenue generated by each utility that occupies the public rights-of-way within the city constitutes a tax on the sale of utility services?


¶ 3 On October 23, 2000, the Billings City Council adopted Ordinance No. 00-5133, entitled the "City of Billings Right-of-Way Management Ordinance" ("the ordinance"). The stated purpose of the ordinance was to protect the public rights-of-way within the city against damage and unauthorized encroachment; minimize public inconvenience during utility emplacement or maintenance; recover the costs of regulation and oversight; recover fair compensation for the occupation of the rights-of-way; and prevent premature exhaustion of the right-of-way capacity to accommodate telecommunications, utilities and other public services. To accomplish these goals, the ordinance set forth a comprehensive regulatory scheme for leasing city-owned property, licensing non-governmental entities whose facilities pass through the rights-of-way and executing franchise agreements with businesses that occupy the rights-of-way to service customers within the city. Under the ordinance, each lessee, licensee and franchisee must obtain a work permit, post a performance bond, secure insurance and comply with the various notice provisions of the ordinance before entering city-controlled property to install or maintain facilities. Each must also pay fees in accordance with (1) a lease of city property based on fair market rent, (2) a pass-through license based on a per-foot annual assessment, or (3) a franchise fee based on 4 percent of gross annual revenues received from the provision of telecommunications or utility services within the city. Under the ordinance, operative franchise contracts remain valid and enforceable for the terms of the existing agreements.

¶ 4 Montana-Dakota Utilities (MDU), Montana Power Company and Yellowstone

Valley Electric Cooperative (collectively, "the Utilities") filed an Amended Complaint on February 1, 2001. The Utilities challenged the franchise fee provisions of the ordinance as an illegal tax on the sale of their services within the city and sought a declaratory judgment. Touch America, Inc., intervened as a plaintiff without objection. By stipulation, the parties agreed that MDU would not be required to file a franchise application required by the ordinance until its 25-year franchise agreement with the City of Billings (hereafter "the City") expires in 2004. The City Council delayed enforcement of the ordinance pending the resolution of the legal challenge in the District Court.

¶ 5 On cross-motions for summary judgment, the District Court ruled on September 20, 2001, that the ordinance's franchise fee constituted an unlawful tax. The court also held that the franchise fee provisions of the ordinance were severable from the provisions that otherwise regulated use of the public rights-of-way in the City. However, a successful initiative drive placed the ordinance on the November 2001 ballot, and Billings voters rejected the measure by a margin of 58 to 42 percent. The City filed a timely appeal, and oral argument was heard before this Court on September 17, 2002.


¶ 6 Our standard of review on appeal from summary judgment rulings is de novo. Motarie v. N. Mont. Joint Refuse Disposal Dist. (1995), 274 Mont. 239, 242, 907 P.2d 154, 156

. We apply the same evaluation as the district court based on Rule 56, M.R.Civ.P., and Bruner v. Yellowstone County (1995), 272 Mont. 261, 264, 900 P.2d 901, 903. We review a district court's conclusions of law to determine whether the court's interpretation of the law is correct. Carbon County v. Union Reserve Coal Co. (1995), 271 Mont. 459, 469, 898 P.2d 680, 686.


¶ 7 This Court normally does not address moot questions, i.e., questions that once existed but no longer present an actual controversy. Lewistown Propane Co. v. Moncur, 2002 MT 349, ¶ 14, 313 Mont. 368, ¶ 14, 61 P.3d 780, ¶ 14 (citation omitted). Although voter rejection of the ordinance in November 2001 mooted issues concerning the legal validity of that measure, the Utilities urge this Court to accept jurisdiction under the exception for issues which are capable of repetition yet avoid review. The Utilities cite Skinner Enterprises, Inc. v. Lewis & Clark City-County Health Dept., 1999 MT 106, 294 Mont. 310, 980 P.2d 1049, in which we set forth a two-part burden that the party invoking the exception must shoulder: (1) the challenged action must be too short in duration to be fully litigated prior to cessation; and (2) there must be a reasonable expectation that the same complaining party would be subject to the same action again. Skinner, ¶ 18 (citing Heisler v. Hines Motor Co. (1997), 282 Mont. 270, 275-76, 937 P.2d 45, 48).

¶ 8 The Utilities point out that the Billings City Council passed an ordinance in 1992 that incorporated franchise fee provisions similar to those charged by the ordinance subject to this appeal. When a referendum drive placed the 1992 ordinance before the voters, the City withdrew the measure. In the case before us today, Billings voters disapproved the ordinance about six weeks after the District Court ruled the franchise fee provisions illegal, but before this Court had an opportunity to address the City's appeal. The Utilities assert that, in the absence of a final determination by this Court of the fee's legality, the City may again bring forth a similar local ordinance that impresses a franchise fee upon utilities.

¶ 9 We have consistently held that the existence of a justiciable controversy is a threshold requirement to a court's granting relief. Powder River County v. State, 2002 MT 259, ¶ 101, 312 Mont. 198, ¶ 101, 60 P.3d 357, ¶ 101 (citing Shamrock Motors, Inc. v. Ford Motor Co., 1999 MT 21, ¶¶ 17-19, 293 Mont. 188, ¶¶ 17-19, 974 P.2d 1150, ¶¶ 17-19). The test for a justiciable controversy consists of three elements: (1) the parties have existing and genuine, as distinguished from theoretical, rights or interests; (2) the controversy must be one upon which the judgment of the court may effectively operate, as distinguished from a debate or argument invoking a purely political, administrative, philosophical or academic conclusion; and (3) there must be a controversy the judicial determination of which will have the effect of a final judgment in law or decree in equity upon the rights, status or legal relationships of one or more of the real parties in interest, or lacking these qualities be of such overriding public moment as to constitute the legal equivalent of all of them. Powder River County, ¶ 102 (citing Northfield Ins. Co. v. Montana Ass'n of Counties, 2000 MT 256, ¶ 12, 301 Mont. 472, ¶ 12, 10 P.3d 813, ¶ 12).

¶ 10 The franchise fee provision of the ordinance under consideration presents the issue of whether the fee violates Montana's statutory prohibition against local governments imposing a tax on the sale of goods and services, § 7-1-112(1), MCA. When certain public utilities were released from monopoly regulation by state and federal governments during recent years, local governments re-evaluated their practice of granting franchises for utility use and occupation of city streets and alleys at no cost. See, Roger D. Colton and Michael F. Sheehan, Raising Local Government Revenue Through Utility Franchise Charges: If the Fee Fits, Foot It, 21 Urb. Law. 55 (1989); Clarence A. West, The Information Highway Must Pay Its Way Through Cities: A Discussion of the Authority of State and Local Governments to be Compensated For the Use of Public Rights-of-Way, Mich. Telecomm. & Tech. L.Rev. 29 (1994-95). Given the inclination of Montana's local government leaders to exploit potential new sources of revenue, we anticipate the question of whether the Montana Legislature has checked the power of local governments to charge franchise fees will, in the absence of appellate review, arise again. Franchise law is relatively undeveloped in Montana. However, this case may be resolved on the basis of statutory interpretation. We conclude that appellate review of the franchise fee controversy will have the effect of a final judgment in law regarding the rights of local governments and utilities and is appropriate at this time.

¶ 11 In accepting jurisdiction, we limit our review to the issue of whether the ordinance's franchise fee constitutes an illegal tax, proscribed by § 7-1-112(1), MCA.


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