Mediacom Southeast LLC v. Bellsouth Telecomms., Inc. 

55 Communications Reg. (P&F) 745

672 F.3d 396

MEDIACOM SOUTHEAST LLC, Plaintiff–Appellant,

v.BELLSOUTH TELECOMMUNICATIONS, INC. d/b/a AT & T Kentucky, Defendant–Appellee.

No. 10–6117.

United States Court of Appeals, Sixth Circuit.

Argued: Oct. 6, 2011.Decided and Filed: March 2, 2012.

ARGUED: Laurence J. Zielke, Zielke Law Firm PLLC, Louisville, Kentucky, for Appellant. Geoffrey M. Klineberg, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., for Appellee. ON BRIEF: Laurence J. Zielke, Zielke Law Firm PLLC, Louisville, Kentucky, for Appellant.

Geoffrey M. Klineberg, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, D.C., Philip W. Collier, Michael E. Kleinert, Stites & Harbison, PLLC, Louisville, Kentucky, Mark R. Overstreet, Stites & Harbison, PLLC, Frankfort, Kentucky, Mary K. Keyer, AT & T Kentucky, Louisville, Kentucky, for Appellee.Before: BOGGS and STRANCH, Circuit Judges; and CARR, District Judge.^*

OPINION

BOGGS, Circuit Judge.

In 2009, AT & T sought to introduce a video service in Hopkinsville, Kentucky, relying on authority provided by its perpetual, Commonwealth-wide, telephone franchise granted in 1886. The City of Hopkinsville sued, claiming the telephone franchise did not allow AT & T to offer such services over its telephone wires. After Hopkinsville and AT & T settled, Mediacom, an incumbent cable provider in Hopkinsville, intervened and asserted that AT & T was required under the Kentucky Constitution and local law to obtain a new cable franchise. The district court granted AT & T's motion to dismiss under Fed.R.Civ.P. 12(b)(6), finding that as a matter of law, AT & T's franchise permitted it to offer the service.

The district court prematurely reached the question of law, and improperly dismissed the case in the absence of a sufficient factual record. Prior to resolving the legal question, the district court must first determine whether the video service is more analogous to a one-way television service, or a two-way telephone service. We therefore reverse and remand.

I

In 1886, Kentucky granted the predecessor-in-interest of BellSouth Telecommunications, Inc. d/b/a AT & T Kentucky (“AT & T”) a perpetual, Commonwealth-wide, telephone franchise, giving it the right to “purchase, construct, maintain and operate, within this State and elsewhere, telephone lines, exchanges and systems, and to conduct all the business incident and pertaining thereto,” and to “construct, equip and maintain telephone lines along, over or under the highways, streets and alleys, and across any water-course within this Commonwealth, so as not to obstruct the same.” 1886 Ky. Acts ch. 511, §§ 4–5. Based on this franchise, in 2009, AT & T sought to introduce video delivery as part of its “U-verse” package for homes in Hopkinsville, and throughout the Commonwealth.

On December 16, 2009, the City of Hopkinsville and the Kentucky League of Cities filed a complaint against AT & T in state court, seeking a declaration that AT & T's 1886 franchise did not permit it to offer the U-verse video service. The complaint alleged that AT & T needed to obtain a separate cable franchise from a municipality before offering such services in that city. AT & T removed the case to the United States District Court for the Western District of Kentucky. On January 11, 2010, AT & T and Hopkinsville entered into a settlement agreement, and stipulated that AT & T could provide video programming without publicly bidding for a cable franchise—a process ostensibly required by §§ 163–164 of the Kentucky Constitution.¹ Hopkinsville and AT & T further stipulated that the suit should be dismissed with prejudice. Finally, Hopkinsville “recognized that AT & T has an existing statewide franchise that permitted access to public rights-of-way and did not require an additional franchise to provide U-verse.”

Following the dismissal, Mediacom Southeast LLC (“Mediacom”) filed an intervening complaint, seeking the same declaration Hopkinsville originally sought—that AT & T's 1886 franchise did not permit it to use its existing access to rights-of-way to offer U-verse video service, and that AT & T must obtain a cable television franchise from Hopkinsville. AT & T filed a motion to dismiss Mediacom's amended intervening complaint, arguing that AT & T was not required to obtain a new license prior to offering U-verse video service because this service fell within the scope of its existing Commonwealth-wide telephone franchise.

The district court issued a six-page memorandum granting AT & T's motion to dismiss, finding that AT & T's license permitted it to offer video services. Memorandum Opinion and Order (“Mem. Op.”). The court “afford[ed] great weight” to, and “agree[d]” with an opinion issued two years earlier by the Kentucky Attorney General, who had concluded that AT & T's perpetual license permitted it to “provide IP [internet protocol] video services within its existing rights-of-way without securing additional authorizations.” Mem. Op. at 5 (citing Opinion of the Attorney General, OAG 08–007, 2008 Ky. AG LEXIS 7, at *5 (Aug. 6, 2008)).

Citing the Attorney General's opinion—which in turn cited opinions of the Supreme Courts of Ohio and Mississippi from 1949 and 1956, respectively—the district court reasoned that AT & T need not obtain a new cable franchise. First, the court found that “[t]he transmission of IP video services along AT & T Kentucky's existing facilities ‘is merely an advancement or improvement in the art of telegraphy and telephony.’ ” Ibid. (quoting Ohio Tel. & Tel. Co. v. Steen, 85 N.E.2d 579, 580 (Ohio Com.Pl.1949)). Second “IP video ‘is but one of many scientific achievements ... which employs electrical impulses in the transmission process.’ ” Ibid. (quoting Ball v. Am. Tel. & Tel. Co., 227 Miss. 218, 86 So.2d 42, 45 (1956)) (ellipsis in original). Third, “[t]o require AT & T Kentucky to secure a new franchise ‘for every new device that employs the use of electrical impulses ... would lead to absurd and unreasonable results.’ ” Ibid. (quoting Ball, 86 So.2d at 45). The court, in granting the motion to dismiss, held that “as a matter of law ... AT & T Kentucky's existing franchise permits it to use its current facilities to transmit IP video services to customers in Hopkinsville, as outlined.” Id. at 5–6. Mediacom filed a timely appeal following the court's memorandum and opinion.

The district court dismissed Mediacom's complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. On appeal, this court reviews de novo a dismissal pursuant to Rule 12(b)(6). Courie v. Alcoa Wheel & Forged Products, 577 F.3d 625, 629 (6th Cir.2009) (citing Marks v. Newcourt Credit Grp., Inc., 342 F.3d 444, 451–52 (6th Cir.2003)).

II

The district court made two errors that warrant reversal. First, the court failed to apply the appropriate standard of review for a motion to dismiss, improperly assigning the burden of proof to the non-moving party, Mediacom. Second, the court relied on self-serving facts written by AT & T in a stipulated agreement—facts that conflicted with the well-pleaded facts in the complaint—to make findings about the nature of the U-verse service, and its applicability to AT & T's telephone franchise.

A

Even under the heightened pleading standards of Iqbal and Twombly, the district court improperly dismissed the complaint. Plaintiff's complaint does not consist of “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). The factual allegations in the complaint do “raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

The district court stated that Mediacom's “claim” turns on a single question—“whether the transmission of IP video signals is outside the scope of AT & T Kentucky's existing franchise.” Mem. Op. at 4. “If the transmission of IP video signals is within the scope of AT & T Kentucky's existing franchise, then Mediacom's Amended Complaint must be dismissed.” This very well may be the proper question of law on a motion for summary judgment—assuming there are no genuine issues of material fact—but it is not the proper inquiry for a motion to dismiss. At this stage, the single question is whether plaintiff's complaint includes “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570, 127 S.Ct. 1955. The answer to that question is yes.

Further, the district court stated that “Mediacom's contention that AT & T Kentucky requires a separate franchise to offer its IP video service [was] unpersuasive.” The court improperly placed the burden of proof on the plaintiff. On a motion to dismiss, AT & T, the moving party, bore the burden, not the non-moving party, Mediacom.

B

The court made factual findings based on the settlement agreement entered into between AT & T and Hopkinsville. A district court is not permitted to consider matters beyond the complaint. Winget v. JP Morgan Chase Bank, N.A., 537 F.3d 565, 576 (6th Cir.2008). To do so would convert the motion to dismiss into a motion for summary judgment. Ibid. The settlement agreement was not attached to the complaint, but was attached to the plaintiff's motion to intervene and referred to in the complaint. Because the agreement “appear[ed] in the record,” and was “referred to in the complaint” the “court may consider” it “so long as [it is] central to the claims contained therein.” Rondigo, L.L.C. v. Twp. of Richmond, 641 F.3d 673, 680–81 (6th Cir.2011) (quoting Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir.2008)).

Here, the district court's reliance on the agreement was improper—the facts in the complaint directly conflict with the facts in...