Qwest Corp. v. City of Portland, 02-35473.

• Decision Date: 12 October 2004
• Docket Number: No. 02-35473.,02-35473.
• Citation: 385 F.3d 1236
• Parties: QWEST CORPORATION, a Colorado corporation, Plaintiff-Appellant, v. CITY OF PORTLAND, an Oregon municipal corporation, Defendant-Appellee, City of Happy Valley; City of Keizer; City of North Plains; City of Pendleton; City of Redmond; City of Salem; City of Eugene; City of Springfield; City of Ashland, Defendants-Intervenors-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

385 F.3d 1236

QWEST CORPORATION, a Colorado corporation, Plaintiff-Appellant, v. CITY OF PORTLAND, an Oregon municipal corporation, Defendant-Appellee, City of Happy Valley; City of Keizer; City of North Plains; City of Pendleton; City of Redmond; City of Salem; City of Eugene; City of Springfield; City of Ashland, Defendants-Intervenors-Appellees.

No. 02-35473.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 3, 2003.

Filed October 12, 2004.

Appeal from the United States District Court for the District of Oregon; John Jelderks, Magistrate Judge, Presiding. D.C. No. CV-01-01005-JE.

David Goodnight, Stoel Rives LLP; Seattle, WA, Yana D. Koubourlis, Dorsey & Whitney LLP, Seattle, WA; Patrick Lynch, Emily Brubaker, O'Melveny & Myers LLP, Los Angeles, CA; Roy Adkins, Qwest Corporation, Denver, CO, for plaintiff-appellant Qwest Corporation.

Jeffery L. Rogers, Portland City Attorney, Harry Auerbach, Deputy City Attorney, Portland, OR; Nicholas Miller, Joseph Van Eaton, William Malone, Miller & Van Eaton, P.L.L.C, Washington, DC, for defendant-appellee City of Portland.

Pamela J. Beery, Paul C. Elsner, Berry Elsner & Hammond, LLP, Portland OR; Kenneth A. Wittenberg, Wittenberg & Pitzer, LLP, Portland, OR, for intervenor cities of Ashland, Happy Valley, Keizer, North Plains, Pendleton, Redmond, Salem, and Springfield.

William F. Gary, Jerome Lidz, Linda J. Kessel, Harrang Long Gary Rudnick P.C., Eugene, OR, for intervenor city of Eugene.

Before ALARCON, FERGUSON, and RAWLINSON, Circuit Judges.

Opinion by Judge Rawlinson; Concurrence by Judge Ferguson.

RAWLINSON, Circuit Judge:

Qwest Corporation (Qwest), a telecommunication provider, appeals the district court's summary judgment in favor of the City of Portland and other Oregon cities (Cities), who intervened in the action. Qwest contends that the Federal Telecommunications Act of 1996(FTA), 47 U.S.C. § 253, preempts the municipal ordinances pursuant to which the franchise fees were assessed. The district court ruled that the Cities' ordinances and various franchise agreements were not preempted by the FTA.¹ The district court also determined that the revenue-based fees imposed on the telecommunication providers by the Cities were valid under the FTA. Because the district court failed to conduct an individualized § 253 preemption analysis for each city's ordinances, and misapplied our holding in City of Auburn v. Qwest, 260 F.3d 1160 (9th Cir.2001), we must remand the case to the district court for additional consideration. Because the district court correctly concluded that Qwest's challenge to the Cities' gross revenue-based fees was barred by claim and issue preclusion, that ruling is affirmed.

I. BACKGROUND

In 1932, the Portland City Council issued a revocable permit to the Pacific Telephone and Telegraph Company to use the city's public rights-of-way to provide telecommunications services. In 1961, Pacific Telephone and Telegraph Company transferred the permit to Pacific Northwest Bell Telephone Company (PNWB). U.S. West Communications succeeded to PNWB's interests, and Qwest eventually acquired U.S. West.²

In 1989, Qwest lobbied for adoption of a separate privilege tax for incumbent local telecommunications carriers in exchange for their use of the rights-of-way. The Oregon legislature subsequently enacted ORS §§ 221.505 to 221.515, which authorized Oregon cities to assess incumbent local telecommunications carriers fees of up to 7% of gross revenues. In response to this legislation, the Cities entered into nonexclusive agreements with Qwest, allowing Qwest to use the public rights-of-way. In exchange for this privilege, Qwest agreed to pay the Cities a fee equal to 7% of gross revenues earned within the Cities' boundaries.³

Some ten years later, the city of Portland notified Qwest that it was revoking Qwest's long-standing permit to use its public right-of-way. The parties entered into unfruitful negotiations for a new permit. In the interim, the city of Portland issued Qwest a temporary revocable permit (TRP) allowing Qwest to continue to use its public right-of-way.

Qwest brought this action seeking a declaration that Portland's franchise and telecommunications ordinances are invalid under § 253 of the FTA. Nine other cities intervened and filed counterclaims seeking past-due franchise fees. Following the filing of cross-motions for summary judgment, the district court granted summary judgment to all ten cities, holding that Qwest had failed to show that the Cities' revenue-based right-of-way fees, or other franchise requirements, prohibited or had the effect of prohibiting Qwest's provision of telecommunication services under § 253. Qwest Corp. v. City of Portland, 200 F.Supp.2d 1250, 1253-54, 1256-59 (D.Or.2002). The court also ruled that the FTA did not categorically prohibit cities from basing public rights-of-way fees on a company's gross revenues, rather than on actual costs for use of local rights-of-way. Id. at 1256-57. Finally, the court determined that Qwest's action against the city of Eugene was barred by the doctrine of claim preclusion and that issue preclusion barred Qwest from challenging the other Cities' revenue-based right-of-way fees. Id. at 1257-58. Even if the Cities' revenue-based fees were presumptively preempted under § 253(a), the district court concluded that the fees would still be valid under the safe-harbor provision of § 253(c), and any preempted provisions could be severed under Oregon law. Id. at 1258-59.

II. STANDARD OF REVIEW

We review the district court's grant of summary judgment de novo. See PLANS, Inc. v. Sacramento City Unified School Dist., 319 F.3d 504, 507 (9th Cir.2003). Viewing the facts in the light most favorable to the nonmoving party, we must determine whether a genuine issue of material fact exists, and whether the district court applied the law correctly. See Fortyune v. American Multi-Cinema, Inc., 364 F.3d 1075, 1080 (9th Cir.2004).

III. DISCUSSION

To resolve this case, we must interpret the FTA, 47 U.S.C. § 253, which provides in part:

(a) In general. No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

(b) State regulatory authority

Nothing in this section shall affect the ability of a State to impose, on a competitively neutral basis and consistent with section 254 of this title, requirements necessary to preserve and advance universal service, protect the public safety and welfare, ensure the continued quality of telecommunications services, and safeguard the rights of consumers.

(c) State and local government authority

Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government.

47 U.S.C. § 253.

Section 253(a) preempts regulations that not only prohibit outright the ability of any entity to provide telecommunications services, but also those that "may ... have the effect of prohibiting the provision of such services." 47 U.S.C. § 253(a). In City of Auburn, we considered whether § 253 preempted local ordinances that established permit processes for telecommunications providers. In discussing § 253 preemption, we noted that "[t]he preemption is virtually absolute and its purpose is clear — certain aspects of telecommunications regulation are uniquely the province of the federal government and Congress has narrowly circumscribed the role of state and local governments in this arena." City of Auburn, 260 F.3d at 1175. Accordingly, cities have "a very limited and proscribed role in the regulation of telecommunications." Id. (citation omitted).

To determine whether preemption exists under § 253(a), it is necessary to analyze whether the regulatory scheme "in combination" has "the effect of prohibiting the provision of telecommunications services." City of Auburn, 260 F.3d at 1176. In conducting this analysis in City of Auburn, we examined such factors as the nature of the franchise application process, the requirements to obtain a franchise, the threat of penalties for failure to obtain a franchise, and the discretion the city reserves to grant, deny, or revoke a franchise. Id. ("And, the ultimate cudgel is that each city reserves discretion to grant, deny, or revoke the franchises and the Cities may revoke the franchise if the terms in the ordinance are not followed ..."). In City of Auburn, we held that the combination of features present in the regulatory scheme created "a substantial and unlawful barrier to entry into and participation in the ... telecommunications markets." Id.

Qwest challenges the Cities' ordinances in two ways. First, Qwest argues that the Cities' ordinances are similar in scope and substance to those preempted in City of Auburn. As was the case in City of Auburn, Qwest contends that these ordinances, taken as a whole, are preempted by Section 253(a). Qwest also makes a more narrow challenge, asserting that Section 253 prohibits the Cities from basing right-of-way fees on Qwest's gross revenues. In support of this argument, Qwest posits that Section 253 allows local officials to recover only the costs of the use of the right-of-way, rather than to assess fees based on the gross revenues of the telecommunication providers. Each challenge will be discussed separately.

A. General Franchise Requirements

In analyzing the Cities' franchise requirements generally under § 253(a), the district court ruled that the "franchise agreements and ordinances at issue here do not give the Cities unfettered discretion to deny telecommunications...