Level 3 Communications, L.L.C. v. City of St. Louis

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

Nos. 06-1398/06-1459
___________

Level 3 Communications, L.L.C., *
*
Appellee/Cross-Appellant, *
*
v. *
*
City of St. Louis, Missouri, *
*
Appellant/Cross-Appellee, *
__________________ *
*
Missouri Chapter of the National * Appeals from the United States
Association of Telecommunications * District Court for the Eastern
Officers and Advisors; National * District of Missouri.
Association of Telecommunications *
Officers and Advisors; International *
Municipal Lawyers Association; Local *
Government Lawyer's Roundtable, *
*
Amici on behalf of *
Appellant/Cross-Appellee, *
*
Southwestern Bell Telephone L.P., *
doing business as AT&T Verizon *
Telephone Companies; MCImetro *
Access Transmission Services, LLC, *
doing business as Verizon Access *
Transmission Services, *
*
Amici on behalf of *
Appellee/Cross-Appellant. *
 ___________

Submitted: October 16, 2006
Filed: February 5, 2007
___________

Before MELLOY, BEAM, and BENTON, Circuit Judges.
___________

BEAM, Circuit Judge.

This case involves a telecommunications licensing agreement that requires
Level 3 Communications (Level 3) to pay fees and meet other obligations before
accessing streets and rights-of-way owned or controlled by the City of St. Louis (City
or St. Louis). The parties appeal and cross-appeal the district court's rulings on cross-
motions for summary judgment. We reverse the district court's grant of summary
judgment to Level 3 under 47 U.S.C. § 253(a), affirm the denial of summary judgment
on Level 3's section 1983 claim, and do not reach the other statutory and non-statutory
claims asserted by the parties.

I. BACKGROUND

In April of 1999, Level 3 and St. Louis entered into the licensing agreement (the
Agreement). The Agreement incorporates by reference the terms of St. Louis City
Revised Code Chapter 23.64, which allows the City to regulate the process and
procedures by which a telecommunications entity may occupy the streets and public
rights-of-way within the City. The portions of Chapter 23.64 incorporated into the
Agreement require Level 3, among other things, to submit an application for licensure,
to apply for amendments to the license, to provide and install municipal service
conduits within a common trench upon request, to maintain a performance bond for
the City's benefit, to maintain liability insurance in the amount of at least $500,000,
to indemnify the City for any negligence of City employees in any way connected

-2-
with Level 3's communications system, and to employ only City-approved contractors
for work on network facilities installed under the license.

The Agreement also allows the City to charge Level 3 an annual licensing fee.
The amount charged–the footage fees–is calculated annually based upon not only the
number of linear feet of conduit installed by Level 3 within the City but also the
number of active conduits within each linear-foot. The amount charged per foot also
varies yearly to adjust for inflation.

In late July 2003, Level 3 refused to continue paying the footage fees due under
the Agreement. Litigation ensued. Level 3 filed suit against the City seeking a
declaration that the Agreement's obligations, both fee and non-fee related, violated
state law, 42 U.S.C. § 1983, and the Federal Telecommunications Act of 1996,
specifically, 47 U.S.C. § 253. The City also filed a declaratory judgment action
asking that the Agreement be found valid under state and City law, and that the court
compel Level 3 to comply with the contract. The district court consolidated the cases.
The parties filed cross-motions for summary judgment, resulting in the district court
order now before us.

The district court held the footage fees valid under state law and found no cause
of action under 42 U.S.C. § 1983. The court then addressed the alleged violation of
47 U.S.C. § 253.1 While Level 3 admitted that it could point to no services it had been

1
47 U.S.C. § 253 reads, in pertinent part:

§ 253. Removal of barriers to entry

(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.

-3-
unable to provide to date because of the Agreement, the court found that Chapter
23.64, as incorporated into the Agreement, "includes several provisions that 'in
combination' 'have the effect of prohibiting' the ability to provide telecommunications
services under 47 U.S.C. § 253(a)."

Having concluded that Chapter 23.64 as a whole violated section 253(a), the
court then went on to determine whether the safe harbor provision of section 253(c)
saved any of the individual provisions incorporated into the Agreement. The court
found that the non-fee requirements, such as the application, common conduit trench,
indemnity, bond, and certified contractor obligations were reasonable public safety
requirements related to the management of public rights-of-way and thus valid under
section 253(c). However, the court found that for the linear-foot fee to meet the
definition of "fair and reasonable compensation" it "must be directly related to the
actual costs incurred by the City when a telecommunications provider makes use of
the rights-of-way." Because the City offered no evidence that the fees had "any
relation to the City's costs in managing, inspecting, and maintaining its rights-of-way,"
the court held that they did not qualify as "fair and reasonable compensation" under
section 253(c).

....

(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.

-4-
II. DISCUSSION

Though various district courts in this circuit have construed section 253, we
have yet to do so. The language and structure of section 253 has, to understate the
matter, "created a fair amount of confusion." New Jersey Payphone Ass'n, Inc. v.
Town of West New York, 299 F.3d 235, 240 (3d Cir. 2002). Therefore, before
engaging in a review of the district court's final judgment, we will delineate the
relationship between sections 253(a) and 253(c), and establish who has the burden of
proof when a violation of section 253(a) is being considered.

A. The Relationship Between Sections 253(a) and 253(c)

Subsection (a), a rule of preemption, articulates a reasonably broad limitation
on state and local governments' authority to regulate telecommunications providers.
Subsection (c) begins with the phrase "Nothing in this section affects" and then
enumerates various protected state and local government acts. Thus, section 253(a)
states the general rule and section 253(c) provides the exception–a safe harbor
functioning as an affirmative defense–to that rule. Id.; Bellsouth Telecomms., Inc.
v. Town of Palm Beach, 252 F.3d 1169, 1187 (11th Cir. 2001).

We write on this point to make it clear that only after "the party seeking
preemption sustains its burden of showing that a local municipality has violated
Section 253(a) by formally or effectively prohibiting entry into the
[telecommunications services] market [does] the burden of proving that the regulation
comes within the safe harbor in Section 253(c) fall[] on the defendant municipality."
New Jersey Payphone, 299 F.3d at 240 (citation omitted).

We acknowledge that others disagree with our understanding of subsection (c)'s
role in section 253. Level 3, in its amended complaint, correctly states that section
253(a) limits the ability of state and local governments to regulate, but then suggests

-5-
that section 253(c) also limits the ability of state and local governments to regulate
their rights-of-way or charge "fair and reasonable compensation." In a broad sense
this may be true, but only if the challenged regulation violates section 253(a). Further,
the Sixth Circuit, in TCG Detroit v. City of Dearborn, 206 F.3d 618, 624 (6th Cir.
2000), found that the challenged fee did not violate section 253(a), and then,
nonetheless, proceeded to analyze the fee under section 253(c), despite that section's
clear role as an exception to section 253(a)'s general rule.

We disagree with the approach taken by the Sixth Circuit because section
253(c) is not self-sustaining. The language of section 253(c) following the phrase
"Nothing in this section affects" "derives meaning only through its relationship to (a)."
Bellsouth Telecomms., 252 F.3d at 1187-88. Indeed, section 253(c), standing alone,
"cannot form the basis of a cause of action against a state or local government." Id.
at 1189. Thus, requiring proof of a violation of subsection (a) before moving to
subsection (c) is the only interpretation supportable by a plain reading of the section
as a whole.

B. Burden of Proof Required to Show a Violation of Section 253(a)

Having held that a violation of section 253(a) is a prerequisite to section 253(c)
analysis, we now address what a plaintiff must establish to support a violation of
section 253(a).

Section 253 (a) states: "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." Under
a plain reading of the statute, we find that a plaintiff suing a municipality under
section 253(a) must show actual or effective prohibition, rather than the mere
possibility of prohibition. We again acknowledge that other courts hold otherwise and
suggest that possible prohibition will suffice. Qwest Commc'ns Inc. v. City of

-6-
Berkeley, 433 F.3d 1253, 1256 (9th Cir. 2006); Qwest Corp. v. City of Portland, 385
F.3d 1236, 1239 (9th Cir. 2004), cert. denied, 544 U.S. 1049 (2005); Qwest Corp. v.
City of Santa Fe, 380 F.3d 1258, 1270 n.9 (10th Cir. 2004); City of Auburn v. Qwest
Corp., 260 F.3d 1160, 1175 (9th Cir. 2001); see also Puerto Rico v. Municipality of
Guayanilla, 450 F.3d 9, 18 (1st Cir. 2006); Puerto Rico Tel. Co. v. Telecomms.
Regulatory Bd., 189 F.3d 1, 9 (1st Cir. 1999).

We disagree with the approach of our sister circuits because they reach a
conclusion contrary to a complete analysis of the section. Examination of the entirety
of section 253(a) reveals the subject of the sentence, "[n]o State or local statute or
regulation, or other State or local legal requirement" is followed by two discrete
phrases, one barring any regulation which prohibits telecommunications services, and
another barring regulations achieving effective prohibition. However, no reading
results in a preemption of regulations which might, or may at some point in the future,
actually or effectively prohibit services, as our sister circuits seem to suggest. By
inserting the word "that" before "may," as one circuit has done, Puerto Rico v.
Municipality of Guayanilla, 450 F.3d at 18 (1st Cir. 2006), or by creative quotation,
as another circuit has found convenient, e.g., Qwest Corp v. City of Portland, 385 F.3d
at 1239 (9th Cir. 2004), the most precise meaning of section 253(a) has been distorted.

When the language of a statute is clear, as we believe is the case with section
253(a), our only duty is to enforce the enactment according to its terms. E.g., Lamie
v. United States Trustee, 540 U.S. 526, 534 (2004). Thus, we hold that a plaintiff
suing a municipality under section 253(a) must show actual or effective prohibition,
rather than the mere possibility of prohibition. The plaintiff need not show a complete
or insurmountable prohibition, see TCG New York, Inc. v. City of White Plains, 305
F.3d 67, 76 (2d Cir. 2002), but it must show an existing material interference with the
ability to compete in a fair and balanced market. Cal. Payphone Ass'n, 12 F.C.C.R.
14,191, 14,206, 1997 WL 400726 (FCC) ¶ 31 (July 17, 1997).

-7-
 C. Summary Judgment on Section 253(a)

Having determined what evidence is necessary to bring a successful section
253(a) claim, we now turn to the district court's order. We begin with the district
court's grant of summary judgment in favor of Level 3 on the question of whether the
City's ordinance violates section 253(a).

When reviewing a grant of summary judgment, we review the district court's
decision de novo, examining the facts in a light most favorable to the non-moving
party. Martin v. E-Z Mart Stores, Inc., 464 F.3d 827, 829 (8th Cir. 2006). Under
Federal Rule of Civil Procedure 56(c), summary judgment is only appropriate when
the moving party shows "that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law." We will thus find that
Level 3 is entitled to summary judgment only if it has carried its burden of showing
that there exists no genuine issue of material fact as to whether the City's ordinance
actually or effectively prohibited or materially inhibited Level 3's ability to provide
telecommunications services, and that it is entitled to judgment as a matter of law.

Level 3's own motion for summary judgment answers this inquiry. Level 3
claims "[t]he proper focus of a threshold § 253(a) inquiry . . . is the scope of the
regulatory authority that a city purports to wield–not whether the city has used that
authority to actually exclude a provider or service." Level 3 further admits in its
response to interrogatories that it "cannot state with specificity what additional
services it might have provided had it been able to freely use the money that it was
forced to pay to the City for access to the public rights-of-way." This admission
establishes that Level 3 has not carried its burden of proof on the record we have
before us.

Without looking for actual or effective prohibition, and despite Level 3's own
admissions on these matters, the district court summarily held that Chapter 23.64,

-8-
incorporated into the Agreement, "includes several provisions that 'in combination'
'have the effect of prohibiting' the ability to provide telecommunications services
under 47 U.S.C. § 253(a)."

We disagree. After a thorough review of the entire record, we find insufficient
evidence from Level 3 of any actual or effective prohibition, let alone one that
materially inhibits its operations. Indeed, Level 3 claims it need not, and admits it has
not, made such a showing. Further, because Level 3 has not carried its burden of
establishing a violation under section 253(a), the district court's section 253(c)
analysis was premature.2

D. Summary Judgment on Section 1983 Claim

In its amended complaint, Level 3 sought damages under section 1983, claiming
that section 253 conferred rights on Level 3 as an intended beneficiary and that the
City violated Level 3's rights under the statute. The district court denied summary
judgment, holding that "Level 3 has not met its burden to demonstrate that the Act
confers a federal right on it." Again, we review de novo a denial of a motion for
summary judgment. Martin, 464 F.3d at 829.

Level 3, as a section 1983 plaintiff, bears the burden of establishing that "the
claim actually involves a violation of a federal right, as opposed to a violation of a
federal law." Ark. Med. Soc'y, Inc. v. Reynolds, 6 F.3d 519, 523 (8th Cir. 1993).
More specifically, "the plaintiff must demonstrate that the federal statute creates an
individually enforceable right in the class of beneficiaries to which [it] belongs." City
of Rancho Palos Verdes v. Abrams, 544 U.S. 113, 120 (2005).

2
As discussed above, because Level 3 shows no violation under section 253(a),
any safe harbor analysis urged by St. Louis under section 253(c) is premature. We
therefore do not reach the district court's analysis of the footage fees as "fair and
reasonable compensation."
-9-
 Circuits are split on whether section 253 creates a right enforceable through a
section 1983 action. Compare Qwest Corp. v. City of Santa Fe, 380 F.3d 1258, 1265
(10th Cir. 2004) (finding Congress did not intend to create a private right of action in
section 253), with BellSouth Telecomms., Inc. v. Town of Palm Beach, 252 F.3d
1169, 1191 (11th Cir. 2001) (finding a private right of action to seek preemption of
state regulations purporting to manage public rights-of-way); TCG Detroit v. City of
Dearborn, 206 F.3d 618, 624 (6th Cir. 2000) (finding that section 253 creates a private
right of action for parties aggrieved by a municipality's unfair rates). However,
Arkansas Medical Society makes clear that the claim must involve not only an
enforceable right, but also a violation of that right. 6 F.3d at 523. We refrain from
joining the fray over whether section 253 creates a private right of action because, as
we held above, Level 3 has shown no violation of section 253, whether or not that
section creates an enforceable right. Thus, the district court did not err by denying
summary judgment on the section 1983 claim.

III. CONCLUSION

For the reasons stated above, we reverse the district court's grant of summary
judgment in favor of Level 3 on the issue of whether the City's regulatory scheme
violates 47 U.S.C. § 253(a), affirm the denial of summary judgment on Level 3's
section 1983 claim, and remand for further proceedings not inconsistent with this
opinion.
______________________________

-10-