Time Warner Entertainment v. Carteret-Craven

• Decision Date: 31 October 2007
• Docket Number: No. 06-1974.,06-1974.
• Citation: 506 F.3d 304
• Parties: TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP, Plaintiff-Appellant, v. CARTERET-CRAVEN ELECTRIC MEMBERSHIP CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

506 F.3d 304

TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP, Plaintiff-Appellant, v. CARTERET-CRAVEN ELECTRIC MEMBERSHIP CORPORATION, Defendant-Appellee.

No. 06-1974.

United States Court of Appeals, Fourth Circuit.

Argued: September 27, 2007.

Decided: October 31, 2007.

ARGUED:

Gardner F. Gillespie, III, Hogan & Hartson, L.L.P., Washington, D.C., for Appellant. Pressly McAuley Millen, Womble, Carlyle, Sandridge & Rice, P.L.L.C., Raleigh, North Carolina, for Appellee.

ON BRIEF:

Gary J. Rickner, Ward & Smith, P.A., New Bern, North Carolina; Paul A. Werner, Hogan & Hartson, L.L.P., Washington, D.C., for Appellant.

Before NIEMEYER and MICHAEL, Circuit Judges, and T.S. ELLIS, III, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Senior Judge ELLIS joined.

OPINION

NIEMEYER, Circuit Judge:

For many years, Carteret-Craven Electric Membership Corporation, a North Carolina electric cooperative, had a pole-attachment agreement with Time Warner Entertainment-Advance/Newhouse Partnership, a cable service provider, permitting Time Warner to attach its cable to Carteret-Craven Electric's utility poles. The initial fee in the 1997 renewal of the agreement provided that Time Warner pay $6 per pole. After Carteret-Craven Electric terminated that agreement in 2004, it demanded an increase to $20 per pole as a condition of any new agreement.

Claiming that the proposed new rate was unreasonable and discriminatory, Time Warner refused to enter into a new agreement. Instead, it commenced this diversity action, requesting a declaratory judgment that Carteret-Craven Electric, in charging excessive and discriminatory rent for pole attachments, violated (1) a statutory duty imposed on electric cooperatives in North Carolina to charge only reasonable and nondiscriminatory rates, see N.C. Gen.Stat. §§ 117-16, 117-16.1, and (2) a common law duty as an electric utility to charge only reasonable and nondiscriminatory rates, see Salisbury & Spencer Ry. v. Southern Power Co., 179 N.C. 18, 101 S.E. 593 (1919). The district court granted Carteret-Craven Electric's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) as to both claims, and Time Warner appealed the district court's ruling, but only as to its common law claim.

Because the common law duty requiring an electric public utility to charge reasonable and nondiscriminatory rates for electric service does not clearly apply to pole-attachment agreements and we are not free to extend North Carolina common law to hold that it does, we affirm.

I

Carteret-Craven Electric, organized as an electric cooperative under Chapter 117 of North Carolina's General Statutes, provides electric service to customers in Carteret, Craven, Jones, and Onslow Counties on the southeastern coast of North Carolina. For many years, Carteret-Craven Electric leased excess space on its utility poles to Time Warner pursuant to a negotiated license agreement between them. In the 1997 renewal of their agreement, Time Warner agreed to pay $6.00 per pole for the first 12 months of the contract, thereafter to be adjusted by "an amount equal to the annual percentage change in the Handy-Whitment Index of Public Utilities, Bulletin 139, Southeastern Region, F.E.R.C. account 364, Poles, Towers, & Fixtures...."

In July 2004, Carteret-Craven Electric legally terminated the 1997 agreement and proposed a new license agreement, with a pole-rental rate of $20.07 per pole. It stated that it calculated this figure by applying the Federal Communications Commission's formula for determining the proper rental rate for pole attachments charged by federally regulated utilities to telecommunications service companies. When Time Warner objected to the new rate as too high and pointed out that Carteret-Craven Electric's application of the FCC formula was erroneous and that the properly calculated FCC rate was actually $11.96 per pole, Carteret-Craven Electric declared that it intended nonetheless to charge the $20.07 rate.

Following an impasse in negotiations, Time Warner commenced this action. In its complaint, it alleged that the $20.07 pole-attachment rate far exceeded Carteret-Craven Electric's cost in making pole space available and that it "far eclips[ed] the rates that would be obtained by use of rate methodologies used by the FCC or other state utility commissions." It also alleged that the $20.07 rate exceeded the rates paid by Time Warner under pole-attachment agreements with other utilities in North Carolina. Finally, it alleged that "on information and belief, [Carteret-Craven Electric] charge[d] a similarly-situated attaching entity, Sprint Corporation, a pole-attachment rental rate of less than $10 per pole." Time Warner grounded Count I of its complaint on Carteret-Craven Electric's statutory duty under North Carolina's General Statutes, §§ 117-16 and 117-16.1 (requiring an electric cooperative to charge reasonable and nondiscriminatory rates for its service to customers), and it grounded Count II on Carteret-Craven Electric's common law duty, as it articulated the duty, "to offer its members reasonable, cost-based, nondiscriminatory rates for electric power and any other goods or services that it provides by way of its property which is devoted to the public use."

The district court granted Carteret-Craven Electric's motion to dismiss, concluding, with respect to the statutory claim, that "entering into a license agreement with a cable company to provide space on its poles does not constitute a `service' or `services' as defined in Chapter 117 [North Carolina General Statutes]," and §§ 117-16 and 117-16.1 "do not provide authority for this court to conclude that defendant may assess only a reasonable and nondiscriminatory pole-attachment rate." The court concluded, with respect to Time Warner's common law claim, that it could not locate any case interpreting North Carolina law "to extend the common law prohibition against discriminatory rates to include negotiated prices for business agreements that are unrelated to the basic statutory purpose of an entity such as [Carteret-Craven Electric]," and that it should not "create" or "expand" North Carolina common law.

From the district court's order dated August 11, 2006, Time Warner appealed, but only with respect to its common law claim. Time Warner contends on appeal that the common law duty imposed on utilities in North Carolina to charge only reasonable and nondiscriminatory rates for service also applies to Carteret-Craven Electric's pro-posed rate under the pole-attachment agreement and that the amount Carteret-Craven Electric seeks to charge for pole attachments is in fact unreasonable and discriminatory.

II

Resting upon the North Carolina common law principle that a public utility must "render [its] service at uniform and reasonable rates and without discrimination," see Clinton-Dunn Tel. Co. v. Carolina Tel. & Tel. Co., 159 N.C. 9, 74 S.E. 636, 639 (1912), Time Warner argues that a public utility also has a duty to charge reasonable and nondiscriminatory rates "for use of [its] property" used in providing its service. Thus, Time Warner claims that Carteret-Craven Electric must lease the excess space on its utility poles at reasonable and nondiscriminatory rental rates and that Carteret-Craven Electric is violating this common law duty because the rate that it proposes is both unreasonable and discriminatory. The proposed $20.07 per pole rate is more than three times the rate that had been established in the prior contract; it is virtually double the rate calculated under the federal Pole Attachment Act; and it far exceeds the rate that Time Warner has to pay other utilities in North Carolina. Moreover, as Time Warner alleges in its complaint, this rate is discriminatory in that Carteret-Craven Electric only charges Sprint Corporation, which Time Warner claims is a similarly situated attaching entity, $10.00 per pole to string its telephone lines, approximately one half of what it proposes to charge Time Warner.

Carteret-Craven Electric agrees with Time Warner that public utilities have a common law duty to sell their "service" to customers at reasonable and nondiscriminatory rates. It argues, however, that it is an electric utility and is not in the business of providing public access to excess space on its utility poles or on any other property it owns. It asserts, "there is simply no basis for finding a common law duty of non-discrimination or reasonableness for an electric membership corporation with respect to anything other than its sales of electric energy."

The governing principles are not in dispute. Public utility companies, such as those in the business of transmitting electricity locally to consumers, "are natural monopolies created by the economic forces of high threshold capital requirements and virtually unlimited economy of scale." See Jackson v. Metro. Edison Co., 419 U.S. 345, 351-52 n. 8, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974). It would make little economic sense for competitors to invest in duplicative sets of electrical poles and transmission lines. Because of the impracticalities of competition, regulation is necessary as a "substitute for competition." Id. at 352 n. 8, 95 S.Ct. 449. With regulation, public utilities are precluded from extracting monopoly premiums for their vital services.

Carteret-Craven Electric is not a typical utility, however, but rather an electric cooperative organized under Chapter 117 of North Carolina's General Statutes, which authorizes the creation and operation of "electric membership corporations" — corporations owned and operated by their members. North Carolina law authorizes such corporations to be formed by persons residing in communities "not served, or inadequately served, with electric energy" and to operate "for the purpose of promoting and...