Ninth Circuit Reverses Lower Court on Section 253 and Holds Carriers Have No Burden To Prove Prohibition of a Specific Telecommunications Service

On Oct. 12, 2004, the United States Court of Appeals for the Ninth Circuit issued a long awaited opinion in Qwest Corp. v. City of Portland, 2004 U.S. App. LEXIS 21171 (9th Cir. 2004). While affirming in part and reversing in part the lower court opinion, the Ninth Circuit made important clarifications that reinforce the scope and meaning of Section 253 of the Communications Act¹ under the Ninth Circuit’s 2001 decision in City of Auburn v. Qwest Corp., 260 F.3d 1160 (9th Cir. 2001). The decision is significant because it is the first Section 253 decision from the Ninth Circuit since Auburn, and clarifies that even incumbent carriers and CLECs already doing business in a given market may still have a claim that a city’s franchising requirements constitute a barrier to entry and thus violate Section 253’s antiprohibition provisions.

The Portland case stems from Qwest’s Section 253 challenge to ordinances and actions of the City of Portland (and ultimately the requirements of nine other Oregon cities that intervened), including a “privilege tax” in the amount of 7 percent of gross revenues imposed by Portland and the other cities. The district court’s opinion had criticized and refused to follow the binding precedent of the Ninth Circuit’s Auburn decision. Breaking from the Auburn holding, the district court had 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 Section 253.

The Ninth Circuit reversed and remanded the district court’s ruling, in part, and affirmed the lower court, in part. On the critical issue of the scope and application of Section 253, the Ninth Circuit rejected the lower court’s holding and analysis, in strong terms. First, the Ninth Circuit held that the district court incorrectly lumped all 10 ordinances together and failed to assess each ordinance individually. Accordingly, the Court remanded the case back the district court for an individualized determination of the ordinances in light of Auburn’s ruling that "[Section 253’s] pre-emption 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."

Second, the Ninth Circuit rejected the lower court’s assertion that Qwest was under an obligation to show the specific telecommunications services that had been prohibited by the challenged requirements. The Ninth Circuit stated that “[w]e do not agree that Qwest was required to make an actual showing of a ‘single telecommunications service that it . . . is effectively prohibited from providing.’” The Ninth Circuit emphasized that under Auburn, regulations that may have the effect of prohibiting the provision of telecommunications services are preempted. The Ninth Circuit also issued a strong rebuke of the district court’s criticism of Auburn, describing it as a “misguided attempt to avoid adhering to binding precedent.”

On the issue of Qwest’s challenge to the 7 percent tax, the Ninth Circuit upheld the lower court’s ruling but on narrower grounds. The district court had held that Section 253 does not categorically prohibit gross revenue-based ROW fees or require that any such fees be cost-based. The Ninth Circuit, however, stated that “[w]e need not decide this matter....” Rather, it upheld the district court grant of summary judgment in favor of the cities based on the doctrines of issue and claim preclusion. The Court held that the preclusion doctrines applied because the 7 percent tax had survived a previous state court challenge by Qwest’s predecessor, US West, in the City of Eugene. US West Communications, Inc. v. City of Eugene, 177 Ore. App. 424, (Or.Ct.App. 2001), aff'd in part and vacated in part, 336 Ore. 181 (Or. 2003). In upholding the district court’s preclusion ruling, the Ninth Circuit noted that Auburn and Eugene “are not inconsistent determinations of the same issue” because Auburn did not address the specific issue of whether a gross revenue-based fee imposed upon telecommunications providers must be cost based. The practical effect of this ruling is that while Qwest may not challenge the 7 percent fee, other providers subject to the fee are still free to do so in the Ninth Circuit, as they are not bound by the Eugene decision in the same way as Qwest.

If you have any questions regarding Section 253 or this decision, please contact us.

Footnotes:

1 Enacted as part of the Telecommunications Act of 1996, Section 253 prohibits any State or local statute, regulation, or other legal requirement that may prohibit or have the effect of prohibiting the ability of any entity to provide telecommunications services.