CNSP, Inc. v. Webber

CNSP, INC., doing business as NMSURF, Plaintiff, v. ALAN M. WEBBER, RENEE VILLAREAL,SIGNE I. LINDELL, PETER IVES,CAROL ROMERO-WIRTH, CHRIS RIVERA,ROMAN ABEYTA, MICHAEL HARRIS,JOANNE VIGIL COPPLER,in their official capacities as mayor and city council membersof the City of Santa Fe, respectively, Defendants.

Civ. No. 17-0355 KG/SCY

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

May 27, 2020

MEMORANDUM OPINION AND ORDER

This matter comes before the Court upon Defendants' (collectively, City of Santa Fe) Motion to Dismiss Plaintiff's First Amended Complaint, filed May 23, 2019. (Doc. 75). Plaintiff responded on June 6, 2019, and Defendants replied on June 18, 2019. (Docs. 76 and 77). Having considered the Motion to Dismiss, the accompanying briefing, the record of the case, and relevant law, the Court denies the Motion to Dismiss as described below.

I. Background

The Telecommunications Act of 1996 ("TCA") was enacted by Congress "to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." Pub. L. No. 104-104, 110 Stat. 56, 56 (1996), codified at 47 U.S.C. § 253. The statute, therefore, preempts state and local laws that "have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." 47 U.S.C. § 253(a). However, local governments may "require fair and reasonable compensation from telecommunications providers, on a competitively and neutral nondiscriminatory basis, for use of public rights-of-way ... if the compensation required is publicly disclosed by such government." 47 U.S.C. § 253(c). In addition, the statute provides the Federal Communications Commission ("FCC") shall preempt enforcement of any state or local law that violates § 253(a). 47 U.S.C. § 253(d).

Under Chapter 27 of the City of Santa Fe's ordinances, entities must apply for and obtain a franchise agreement to access a public right of way ("PROW") to construct telecommunications infrastructure. City of Santa Fe Ord. (2016-42, §7); § 27-2.4(A) (as amended Nov. 9, 2016). If the application is approved, the City negotiates terms of the franchise and the City council adopts the agreement by ordinance. Id. § 27-2.4 (2016). An entity that obtains a franchise must pay the City of Santa Fe a 2% infrastructure maintenance fee for all gross charges sought for "telecommunications originating or received in the city." Id. § 27-2.5 (as amended Nov. 9, 2016).

A. Plaintiff's Original Complaint

In its original Complaint filed March 20, 2017, Plaintiff, an internet service provider, brought three causes of action against the City of Santa Fe. (Doc. 1). Under the first cause of action, Plaintiff alleged that certain provisions of Chapter 27 of the City of Santa Fe's municipal code had the effect of prohibiting it from providing telecommunications services in violation of § 253 of the TCA. Id. at ¶¶ 31-43. Additionally, Plaintiff alleged that the City of Santa Fe's failure to act on Plaintiff's franchise application also prohibited it from providing telecommunications services in violation of § 253. Id. Plaintiff's second cause of action alleged the City of Santa Fe discriminated against it in violation of the equal protection clauses of theFifth Amendment of the United States Constitution and Section 18 of the New Mexico Constitution. Id. at ¶¶ 46-55. Under the third cause of action, Plaintiff alleged the City of Santa Fe violated the Anti-donation Clause of Article IX Section 14 of the New Mexico Constitution by using tax revenue bond funds to pay for an infrastructure project with a different service provider and donating material for that project. Id. at ¶¶ 56-64.

B. Defendants' Motion to Dismiss Plaintiff's Complaint

On April 11, 2017, Defendants filed a Motion to Dismiss Plaintiff's Complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. (Doc. 14). The Court granted the Motion to Dismiss on all counts. (Doc. 54). The Court dismissed Plaintiff's § 253(a) claim for damages with prejudice, holding such a claim cannot be brought under § 1983 or an implied private cause of action. Id. at 9.¹ Regarding Plaintiff's preemption claim seeking injunctive relief, the Court dismissed the claim without prejudice, holding the FCC has the authority for such claims pursuant to § 253(d). Id. at 10. The Court also dismissed Plaintiff's constitutional equal protection claims without prejudice and declined to exercise supplemental jurisdiction over the remaining state law claims. Id. at 14-16.

C. Plaintiff's Appeal to the Tenth Circuit Court of Appeals

On March 20, 2018, Plaintiff filed a Notice of Appeal to the United States Court of Appeals for the Tenth Circuit. (Doc. 56). Plaintiff sought review of the dismissal of its claims for damages under §§ 253(a) and (c), brought as a § 1983 private right of action, and of itspreemption claims that certain provisions of the City of Santa Fe's municipal code violated § 253, brought as an implied right of action under the Supremacy Clause.² App. br. at 10.

D. Order of the Tenth Circuit Court of Appeals

The Tenth Circuit issued its Order and Judgement on January 14, 2019, which was filed with this Court on March 7, 2019. (Doc. 61).

1. Private Right of Action for Damages

The Tenth Circuit affirmed the district court's holding that Qwest precluded Plaintiff from bringing a private right of action for damages under 42 U.S.C. § 1983. (Doc. 61) at 11 (citing Qwest Corp v. City of Santa Fe, 380 F.3d 1265, 1265-67 (10th Cir. 2004)) (finding no implied private right of action in § 253).

2. Preemption Claim for Equitable Relief

On appeal, Plaintiff contested the district court's conclusion that only the FCC has the authority to declare preemption under § 253(d), and relied on the Tenth Circuit's holding in Qwest that "[a] party may bring a claim under the Supremacy Clause that a local enactment is preempted even if the federal law at issue does not create a private right of action." (Doc. 61) at 7 (quoting Qwest, 380 F.3d at 1266). In considering this argument, the Tenth Circuit explained that after Qwest was decided, the United States Supreme Court issued a decision "clarif[ying] that no implied right of action is contained in the Supremacy Clause." Id. (quoting Armstrong v. Exceptional Child Care Center, Inc., 575 U.S. 320, 326 (2015)). The Tenth Circuit stated that Armstrong reaffirmed that "federal courts may in some circumstances grant injunctive relief against state officers who are violating, or planning to violate, federal law," however, "the powerof federal courts of equity to enjoin unlawful executive action is subject to express and implied statutory limitations."³ Armstrong, 575 U.S. at 326, 328. In addition, the Tenth Circuit noted that in Safe Streets Alliance v. Hickenlooper, it held in a divided opinion that to maintain an equitable cause of action to enforce a federal statute's preemptive effects, a plaintiff must allege the statute confers on the plaintiff "a federal substantive right of her or his own to vindicate." 859 F.3d 864, 902-03 (10th Cir. 2017).

Based on the holdings in Armstrong and Safe Streets Alliance, the Tenth Circuit suggested that authority for preemption adjudication may not be limited to the FCC under § 253(d). See (Doc. 61) at 7-8. Accordingly, the Court reversed the district court's holding that Plaintiff failed to state a claim on grounds that preemption was limited to the authority of the FCC and remanded the case to allow Plaintiff to amend its complaint to allow the district court to analyze whether Plaintiff can state an equitable preemption claim in light of Armstrong and Safe Streets Alliance. Id. at 9. Additionally, the Court instructed the district court to address whether Plaintiff's claims are moot since the City of Santa Fe awarded Plaintiff a franchise while the appeal was pending. Id. at 10.

E. Plaintiff's First Amended Complaint

In its First Amended Complaint filed on May 9, 2019, Plaintiff pleads two causes of action. See (Doc. 71). First, Plaintiff alleges that Chapter 27-2 of the City of Santa Fe's Telecommunication Facilities in the Public Rights-of-Way Ordinance, as amended in 2017 (the "2017 Ordinance") violates § 253 of the TCA for the following reasons: (i) the 2% fee does not distinguish between charges for service addresses relating to PROW and addresses not relating toPROW; (ii) the 2% gross charge fee and the $2,500 land use application fee "exceed the level of costs permitted by FCC Order 18-133;" (iii) the "amount of the charges imposed by the 2017 Ordinance is prohibitive for telecommunications providers, or retailers, on whom the charges are imposed;" (iv) "the 2% fee is not imposed in a fair and balanced manner, or nondiscriminatory manner, because certain companies are exempted from paying the 2% fee;" and (v) "provisions 5, 8, 17, and 19 in the 2017 Ordinance on their own, or in combination, violate 47 U.S.C. § 253(a)." (Doc. 71) at ¶¶ 24-28.

Second, Plaintiff alleges the City of Santa Fe has engaged in preferential treatment of Cybermesa, a telecommunications company, in violation of § 253 of the TCA. In support of this claim, Plaintiff alleges the City of Santa Fe allows Cybermesa "to use a fiber line owned by the City for free, and to charge other telecommunications providers a fee for the same use, and retain the charges ... ." Id. at ¶ 31. Plaintiff alleges that such "preferential treatment of Cybermesa materially inhibits or limits the ability of Plaintiff to compete in a fair and balanced and nondiscriminatory legal and regulatory environment, and impedes Plaintiff in the provision of telecommunications services, causing injury to Plaintiff." Id. at ¶ 32.

Plaintiff seeks a declaration that the referenced provisions of the 2017 Ordinance and the City of Santa Fe's preferential treatment...