Santa Fe Cmty. Coll. v. Ztark Broadband, LLC
| Decision Date | 01 February 2022 |
| Docket Number | Civ. 20-1151 SCY/KK |
| Parties | SANTA FE COMMUNITY COLLEGE, Plaintiff/Counter-Defendant, v. ZTARK BROADBAND, LLC, a cancelled California Limited Liability Company, Defendant/Counter-Plaintiff. |
| Court | U.S. District Court — District of New Mexico |
This dispute arises from two broadband lease agreements Defendant Ztark Broadband, LLC (“Ztark”) made in 2006: one with Plaintiff Santa Fe Community College (“SFCC”) and another with a different entity, and later transferred to SFCC. Although the lease agreements expired in May 2021, they contain terms which allow Ztark a set period to negotiate renewal of the agreement on “terms and conditions substantially similar” to those contained in the 2006 agreements. Doc. 68 at 3. Renewing the lease agreements under similar terms provides a substantial benefit to Ztark because the market value of the leases has increased considerably since 2006. SFCC therefore filed this action for declaratory judgment, seeking a declaration from the Court that the leases are unenforceable because: (1) the FCC never approved them; (2) the renewal provisions are unconstitutional: and (3) the renewal provisions are unconscionable. Doc. 35 at 9.
Ztark seeks summary judgment on each of these requests for declaratory judgment and, ultimately, dismissal of SFCC's complaint. Doc. 53. Ztark's summary judgment motion was fully briefed on July 29, 2021 (Docs. 61, 76[1]) and the Court held a hearing on January 6, 2022 (Doc. 111). Pursuant to 28 U.S.C. § 636(c), the parties consented to the undersigned to conduct any or all proceedings and to enter an order of judgment. Docs. 11, 12, 13. For the reasons set forth below, the Court grants summary judgment in Ztark's favor as to all claims for declaratory judgment in SFCC's operative complaint.
Except as otherwise noted, the following facts are undisputed. Where facts are disputed, for purposes of this summary judgment motion, the Court views the facts in the light most favorable to SFCC, as the non-moving party.
SFCC is a community college organized under the New Mexico Community College Act.[2] Defendant's Undisputed Material Fact (“UMF”) No. 1, Doc. 53 at 2. It receives approximately 80% of its funds from public sources approximately 30% from the state legislature and 55% from local appropriations.[3] Plaintiff's Additional Undisputed Material Fact (“AMF”) No. 1, Doc. 61 at 7. The remaining 20% of SFCC's budget comes from tuition and fees. UMF No. 1. Ztark is a limited liability company that invests in radio wave spectrum. UMF No. 2. Tyler Kratz is the sole managing member of Ztark. Doc. 35 ¶ 5 (Amended Complaint).
In 1995, the FCC issued broadband spectrum licenses to SFCC and non-party College of Santa Fe (“CSF”). UMF No. 3. SFCC and CSF forfeited those licenses in 2005. UMF No. 3. In May 2006, Ztark entered into Memorandums of Understanding (“MOUs”) with both SFCC and CSF under which Ztark agreed to initiate proceedings with the FCC to reinstate and renew the licenses. UMF No. 4; Doc. 61 at 2 ¶ 4. The 2006 MOUs provided that: “In the event that [SFCC/CSF] is successful in its efforts to obtain the reinstatement and renewal of the License, the Parties agree to negotiate in good faith a Capacity Lease Agreement substantially in the form attached hereto as Appendix A for the lease of the excess capacity on the Channels.” AMF No. 2. Ztark's counsel prepared and filed an Application and Request for Waiver to Reinstate the SFCC and CSF licenses. AMF No. 6. The FCC reinstated and renewed the licenses in June 2009. AMF Nos. 3, 9.
Shortly after the parties executed the 2006 MOUs, but before the licenses were reinstated and renewed, Ztark entered into Capacity Lease Agreements with SFCC and CSF, where Ztark agreed to lease each school's excess broadband capacity for 15 years. UMF No. 5; Doc. 61 at 3 ¶ 5; AMF No. 3. SFCC points out that the lease agreements purported to lease excess capacity on licenses that were expired at the time. Doc. 61 at 3 ¶ 5. Both SFCC and CSF were represented by professional administrators and legal counsel during the negotiations of the agreements and, at all times since 2006 SFCC has been represented by legal counsel in connection with its dealings with Ztark. UMF No. 15.
The 2006 lease agreements contain several provisions that are relevant to this lawsuit. First, Section 4(c) provides:
The parties agree to cooperate to prepare and file with the FCC all applications, forms, related exhibits, certifications and other documents necessary to obtain the FCC's consent to this Agreement and satisfy the FCC's requirements for long term de facto lease approval as set forth in 47 C.F.R § 1.9030(e) (“FCC Long Term Lease Application”). Each party covenants and agrees that it will fully cooperate with the other, and do all things reasonably necessary to timely submit, prosecute and defend the FCC Long Term Lease Application . . . .
UMF Nos. 6, 7; Doc. 61 at 3 ¶ 6; see also Docs. 53-5 at 5, 53-6 at 4 (lease agreements). Section 2(a) further provides that: “In no event shall Lessee have the right to lease or use the Excess Capacity as set forth herein until the date of FCC approval.” UMF No. 7; Doc. 61 at 3 ¶ 7; see also Docs. 53-5 at 2, 53-6 at 2. As is relevant to this provision, there is no FCC rule requiring that approval of a license lease be sought within any specified period of time after the lease is executed. UMF No. 8. Further, the lease agreements provide that Ztark will pay lease fees to SFCC (between $35, 000 and $40, 000) and CSF (between $60, 000 and $65, 000) following the FCC's approval of the leases.[4] UMF No. 9.
Section 3(a) of the agreements provides that Ztark shall install “all equipment necessary for the transmission of service by Lessor and Lessee on the Channels . . . in accordance with any construction deadline which the FCC may impose on the FCC license.” UMF No. 10.
Section 1(b) provides that Ztark has the right to renew the lease agreements on substantially similar terms for an additional 15 years. UMF No. 11. Specifically, the lease agreements provide:
Beginning 180 days prior to the expiration date of the Initial Term, Lessee and Lessor shall have an exclusive 150-day period (“Exclusivity Period”) to negotiate in good faith for a renewal of this Agreement on terms and conditions substantially similar to those contained in this Agreement for the leasing of the Excess Capacity … During the Exclusivity Period, Lessor agrees not to engage in discussions, negotiations, or consultations of any kind with any third party regarding the lease of the Excess Capacity.
The lease agreements came with two risks that the parties were negotiating around: (1) that the FCC would not reinstate the licenses (which indeed, it did not do until 2009 over objections from Sprint) and (2) uncertainty regarding whether the spectrum at issue in the lease agreements would appreciate in value due to technology advances that would allow the spectrum to be used by the mobile telecommunication industry. UMF Nos. 16, 17; AMF No. 9.
In 2010, CSF assigned its broadband spectrum license to SFCC. UMF No. 19. Ztark and SFCC entered into an Agreement for the Transfer and Lease of Licenses and an Asset Purchase Agreement regarding the license originally held by CSF (and now transferred to SFCC). AMF No. 10. Ztark “undertook the effort and expense of making the necessary filings to obtain the FCC approval of the license transfer.” UMF No. 20. SFCC agreed to pay CSF $95, 000 for the assignment. Ztark agreed to pay this amount to CFS on behalf of SFCC. CSF and SFCC agreed this would satisfy Ztark's lease fee obligation under its 2006 lease agreement with CSF. UMF No. 19. The FCC approved the transfer in October 2010. AMF No. 13.
Between 2009 and 2011, SFCC and Ztark began negotiating new capacity lease agreements. AMF No. 11; Doc. 76 at 2 ¶ 11.[5] SFCC points to these negotiations to argue that the parties did not behave as if they had entered into the 2006 lease agreements. AMF Nos. 11, 12 (facts disputed). Ztark disagrees with this characterization and asserts that the negotiations between 2009 and 2011 were for agreements intended to replace the 2006 agreements and, because the parties did not execute replacement agreements, the 2006 agreements remained in effect. Doc. 76 at 2 ¶¶ 11, 14.
In February 2011, Jean Moore, on behalf of SFCC, sent an email to Ztark asking Ztark to “take final action(s) with the FCC necessary to effect the [CSF] transfer, ” and “[a]fter the transfer from College of Santa...
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