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QWEST COMMUNICATIONS CORP. v. CITY OF BERKELEY

May 23, 2001

QWEST COMMUNICATIONS CORP., PLAINTIFF
v.
THE CITY OF BERKELEY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Illston, District Judge.

ORDER GRANTING PRELIMINARY INJUNCTION

On April 25, 2001, the Court heard argument on defendants' motion to dismiss and plaintiff's motion for a preliminary injunction. Having carefully considered the arguments of the parties and the papers submitted, including supplemental briefing, the Court hereby DENIES defendants' motion to dismiss, and GRANTS plaintiffs motion for a preliminary injunction, for the reasons set forth below.

BACKGROUND

Plaintiff Qwest Communications Corporation ("Qwest") is a telephone company defined as a public utility under California Public Utilities Code § 216. Compl. ¶ 4. The California Public Utilities Commission ("PUC") has granted Qwest certificates of public convenience and necessity ("CPCN") to provide interexchange, or long distance, telecommunication services. Id. at ¶ 1; see Declaration of Anne Richeson in Supp. Prelim. Inj. ("Richeson Decl.") ¶ 9 and Ex. A. Qwest provides broadband Internet-based data, voice and image connectivity to businesses, consumers and other communications service providers. Compl. ¶ 28.

In December 1999, Qwest won a competitive bidding process and entered into a government contract to provide faster and expanded telecommunications capacity to the Lawrence Berkeley National Laboratory ("LBN Laboratory"). Compl. ¶ 30; Richeson Decl. ¶ 8. LBN Laboratory is the technical administrator and central hub of a program operated by the United States Department of Energy ("DOE") known as the Energy Sciences Network ("ESNET"). Richeson Decl. ¶ 7. The ESNET is a highspeed communication network that allows Department of Energy researchers and collaborators throughout the nation access to a community of research facilities, resources and information. Id. at ¶¶ 3-5.

In order to upgrade LBN Laboratory's telecommunications capacity, Qwest must install a "local loop" between LBN Laboratory and Qwest's central system. Compl. ¶ 31; Richeson Decl. ¶ 10. This involves constructing a conduit — "a pipeline of sorts" — through which fiber optic cable is strung. Id. at ¶ 32. Sometime in March 2000, Qwest began to formulate a construction plan to lay its conduit through public rights-of-way in the City of Berkeley ("City" or "Berkeley"). Id. at ¶ 32. Qwest met and communicated with city officials from April through December 2000 to negotiate an acceptable construction plan to encroach upon the City's public rights-of-way. See id. at ¶¶ 33, 35, 41-45. The parties were unable to agree, and Qwest consequently did not obtain the necessary permits to begin construction. Qwest claims that the City refused to process its application after July 10, 2000, pursuant to a de facto moratorium on telecommunications infrastructure construction pending enactment of an ordinance affecting installation of telecommunication services in Berkeley. Id. at ¶¶ 35-40.

On December 22, 2000, Berkeley enacted Ordinance No. 6608 — N.S. (codified at Berkeley Municipal Code §§ 16.10 et seq.) (the "Ordinance"), effective January 21, 2001. Id. at ¶ 46. On January 23, 2001, the City passed a Fee Schedule to accompany the Ordinance. Id. at ¶ 48. The City's new Ordinance creates a comprehensive scheme intended "to more specifically regulate Telecommunications carriers providing telecommunications services using public rights of ways and other public property." Ordinance § 16.10.010 (attached at Complaint, Ex. B).

The Ordinance applies to all telecommunications carriers seeking to encroach upon Berkeley's public rights-of-way to provide telecommunication services. Ordinance § 16.10.030. All carriers must first obtain registration and pay related registration fees, which must be updated annually. Id. at § 16.10.040; see also Fee Schedule 2-3 (attached at Complaint, Ex. C). All carriers must also obtain a Special Telecommunications Permit pursuant to § 16.10.050 of the Ordinance and pay additional fees. See also Fee Schedule 3-4. Unless a carrier claims exemption under § 16.10.070, and the City affirmatively determines that an exemption does indeed apply, all carriers are subject to a franchise fee to provide telecommunications services using the City's public rights-of-way. See also id. 5-7.

Qwest filed this lawsuit against the City of Berkeley on February 13, 2001, seeking primarily to invalidate the new Ordinance and Fee Schedule pursuant to the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2, and the "conflict with general laws" provision of the California Constitution. Cal. Const. art. XI, § 7. According to Qwest, Berkeley's Ordinance is preempted by the Federal Telecommunications Act of 1996 ("FTA"), 47 U.S.C. § 253(a) and (c), the California Public Utilities Code §§ 7901 and 7901.1, and the California Government Code § 50030. Qwest also asserts a claim of intentional interference with contractual relationship.

Presently before the Court are a motion by the City to dismiss the complaint and a motion by Qwest for a preliminary injunction based on the preemption claims. These motions were fully briefed and scheduled for argument on April 25, 2001. On April 24, 2001, the Ninth Circuit decided City of Auburn et al. v. Qwest Corporation, 247 F.3d 966 (9th Cir. 2001), which addresses and resolves many of the questions presented in the instant motions. The parties addressed the new case during oral argument, and were also given the opportunity to submit, and did submit, supplemental briefs on the impact of the City of Auburn case. The Court has considered the supplemental briefing in deciding the questions before it.*fn1

DISCUSSION

I. Berkeley's Motion to Dismiss

The City seeks dismissal of the First (federal preemption) and Fifth (intentional interference with contractual relationship) Causes of Action, and any claims in the complaint which challenge the Fee Schedule, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Rule 12(b)(6) requires that a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. The question presented by a motion to dismiss is not whether the plaintiff will prevail in the action, but whether the plaintiff is entitled to offer evidence in support of the claim. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90(1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139(1984).

In answering this question, the Court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiffs favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). Even if the face of the pleadings suggests that the chance of recovery is remote, the Court must allow the plaintiff to develop the case at this stage of the proceedings. United States v. City of Redwood City, 640 F.2d 963, 966 (9th Cir. 1981).

If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has "repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted).

A. Federal Preemption (First Cause of Action)

Qwest's First Cause of Action seeks a declaration that the Ordinance is void under the Supremacy Clause of the United States Constitution, because it is preempted by § 253 of the Federal Telecommunications Act.*fn2

In its motion to dismiss, the City argued that the First Cause of Action must be dismissed because § 253 of the FTA does not create an express or implied private right of action under which Qwest could sue. At oral argument, however, the City withdrew this challenge to Qwest's standing in light of the recent decision, City of Auburn v. Qwest Corp., 247 F.3d 966 (9th Cir. 2001). The Ninth Circuit in City of Auburn allowed Qwest to raise a federal preemption challenge based on § 253 against several local ordinances regulating telecommunications service carriers. The court did not discuss whether Qwest could sue under § 253 but instead cited the Supremacy Clause of the United States Constitution.*fn3 The court held that § 253 of the FTA expressly preempts any state or local law that is contrary to its provisions, and the only question for the court "is whether the ordinances `interfere with, or are contrary to' the Act." Id. at 980 (citing Hillsborough County v. Automated Med. Labs., Inc., 471 U.S. 707, 712, 105 S.Ct. 2371, 85 L.Ed.2d 714 (1985)).

Qwest's challenge to the Ordinance here is also based on the Supremacy Clause. Compl., ¶¶ 2, 67, 73. The Supreme Court has affirmed what City of Auburn implicitly held: private plaintiffs seeking injunctive or declaratory relief may challenge a state statute or local ordinance pursuant to the Supremacy Clause, regardless whether a federal statute confers a private right of action on the plaintiffs. Shaw v. Delta Air lines, Inc., 463 U.S. 85, 96 n. 14, 103 S.Ct. 2890, 2899 n. 14, 77 L.Ed.2d 490 (1983) ("A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is pre-empted by a federal statute which, by virtue of the Supremacy Clause of the Constitution, must prevail, thus presents a federal question which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve."); see also Bud Antle, Inc. v. Barbosa, 45 F.3d 1261, 1269 (9th Cir. 1994) ("Even in the absence of an explicit statutory provision establishing a cause of action, a private party may ordinarily seek declaratory and injunctive relief against state action on the basis of federal preemption.").

The First Cause of Action for federal preemption of the Ordinance states a claim upon which relief can be granted; the motion to dismiss this claim is DENIED.

B. Intentional Interference with Contractual Relationship (Fifth Cause of Action)

The City argues that the intentional interference with contractual relationship claim fails because Qwest has not submitted a compensation claim with the City as required by the California Tort Claims Act, California Government Code § 810 et seq. With respect to Qwest's claim for damages, the City is correct.

The Tort Claims Act represents a limited waiver of sovereign immunity to bring tort claims against the State of California and its public entities, including municipalities such as Berkeley. See Cal. Gov.Code § 815 and § 811.2 (defining public entity to include City or City Council). Plaintiffs desiring to bring tort claims against a public entity must comply with the detailed procedural requirements enumerated in the Tort Claims Act, and failure to do so is a bar to suit. Williams v. Horvath, 16 Cal.3d 834, 838, 129 Cal.Rptr. 453, 548 P.2d 1125(1976); San Jose v. Superior Court, 12 Cal.3d 447, 455, 115 Cal.Rptr. 797, 525 P.2d 701(1974). As the City correctly notes, one procedural prerequisite under the Tort Claims Act is that a claimant seeking monetary damages must file a written claim with the proper public entity before commencing suit. See Cal. Gov.Code §§ 905 and 905.2. Such a claim must be presented no later than six months after the cause of action accrued. Id. at § 911.2.

Qwest alleges in its Fifth Cause of Action that it "has suffered and continues to suffer damages" as a result of the City's unlawful conduct, and requests "such consequential damages . . . as Qwest may prove to the Court." Compl. ¶ 107 and Prayer for Relief, ¶ (ix). Yet, Qwest does not allege that it has submitted a claim with the City to seek compensation for such alleged damages. Thus, Qwest's claim for damages is barred.

Qwest points out, however, that its tort claim against the City also seeks injunctive relief, which is not subject to the procedural requirements of the Tort Claims Act. See Minsky v. City of Los Angeles, 11 Cal.3d 113, 121, 113 Cal.Rptr. 102, 520 P.2d 726(1974); see also Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1130 n. 9, 270 Cal.Rptr. 1, 791 P.2d 587(1990) ("Injunctive relief is available to restrain unjustified interference with contractual relations when damages would not afford an adequate remedy.") (citations omitted). At oral argument, Qwest withdrew any claim for damages asserted in its cause of action for intentional interference of contractual relationship.

Qwest's claim for monetary damages in the Fifth Cause of Action is barred and the City's motion to dismiss it is GRANTED. As to injunctive relief only, the Fifth Cause of Action states a claim upon which relief can be granted; as to this claim, the motion to dismiss is DENIED.

C. Challenges to the Fee Schedule

As a more general matter, Berkeley argues that all claims in the complaint which challenge the Fee Schedule or portions of the Ordinance implementing the Fee Schedule must be dismissed as barred by the Tax Injunction Act of 1937 ("TIA"), 28 U.S.C. § 1341. Qwest responds that the charges imposed by the Fee Schedule are not taxes within the meaning of the TIA, and thus the Court is not required to abstain.

The TIA states: "The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State." 28 U.S.C. § 1341. It is a question of federal law whether a municipal charge constitutes a tax. Wright v. Riveland, 219 F.3d 905, 911 (9th Cir. 2000); see also Trailer Marine Transport Corp. v. Rivera Vazquez, 977 F.2d 1, (1st Cir. 1992) (label placed on assessment by state may be pertinent in deciding whether assessment is "tax," but label is not determinative). The Ninth Circuit relies on three considerations in making this determination: (1) the entity that imposes the charge; (2) the parties on whom the charge is imposed; and (3) whether the funds collected for the charge are expended for general public purposes, or used for the regulation or benefit of the parties on whom the charge is imposed. Bidart Bros. v. California Apple Comm'n, 73 F.3d 925, 931 (9th Cir. 1996); see also San Juan Cellular Tel. Co. v. Public Serv. Comm'n of Puerto Rico, 967 F.2d 683, 685 (1st Cir. 1992) (describing classic tax as "imposed . . . upon many, or all, ...


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