Qwest Corp. v. City of Mex.

QWEST CORPORATION, Plaintiff/Counter-Defendant, v. CITY OF SANTA FE, a New Mexico Municipal Corporation, Defendant/Counter-Plaintiff.

No. 10-CV-0617 RB/KBM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

February 8, 2013

MEMORANDUM OPINION AND ORDER

This matter is before the Court on Plaintiff Qwest Corporation's ("Qwest's") Motion for Summary Judgment on Defendant's Counterclaims (Doc. 264) and Defendant City of Santa Fe's ("City's") Motion for Partial Summary Judgment (Doc. 265). Jurisdiction arises under 28 U.S.C. §§ 1331 and 1332. Having considered the arguments and submissions of counsel, relevant law, and otherwise being fully advised, the Court GRANTS IN PART and DENIES IN PART both motions.

I. Background

The City and Qwest have shared a long history, working together to provide access to telecommunications services for the City's residents. In recent years, the relationship between the City and Qwest has become strained, culminating in this litigation, Qwest's second lawsuit over the City's efforts to alter the fee structure for the use of its public rights-of-way.

Qwest brought the current action challenging the City's most recent telecommunications ordinance, Ordinance 2010-14, amended by Ordinance 2010-33 ("2010 Ordinance"). Pursuant to the 2010 Ordinance, all telecommunication service providers using public rights-of-way will be subject to an annual fee of three percent of the provider's gross revenue. (Ordinance 2010-33, Chapter 27-2.5(A)(1) SFCC 1987, Doc. 95 Ex. 2). The Ordinance includes various other requirements, and Qwest objects to some of those provisions as well as the annual fee.

Qwest and the City simultaneously filed motions for summary judgment. Qwest seeks summary judgment on all of the City's counterclaims as well as the City's request for punitive damages and attorneys' fees.¹ (Doc. 264). The City opposes Qwest's Motion in its entirety. (Doc. 281). The City seeks summary judgment on its breach of contract counterclaim and all of Qwest's claims, including its Telecommunications Act claim, dormant Commerce Clause claim, breach of contract counterclaim-in-reply, equal protection counterclaims-in-reply, and unjust enrichment counterclaim-in-reply. (Doc. 265). Qwest responded, agreeing that the Court may dismiss Qwest's equal protection and unjust enrichment counterclaims-in-reply but opposing the remaining points in the City's motion. (Doc. 280). Qwest requested in its response that the Court grant summary judgment in its favor on all of the claims raised by the City. (Id. at 2-3). The City asks the Court to disregard the request for summary judgment included in Qwest's response, arguing that the request was an improper and untimely cross-motion for summary judgment. (Doc. 293).

II. Legal Standard

Summary judgment is appropriate where the pleadings, discovery materials, and affidavits, if any, show that "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-24 (1986). A fact is "material" if, under the governing law, it could have an effect on the outcome of the lawsuit, and the dispute is "genuine" if a rational jury could find infavor of the nonmoving party on the evidence presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (citations omitted). The party moving for summary judgment bears the initial burden of "show[ing] that there is an absence of evidence to support the nonmoving party's case." Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991) (internal quotation marks omitted); see also Celotex, 477 U.S. at 323. Once the movant meets this burden, the burden shifts to the non-moving party to designate specific facts showing that there is a genuine issue for trial. See Celotex, 477 U.S. at 324; Anderson, 477 U.S. at 256; Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir. 1993).

The court must view all "evidence and draw all reasonable inferences therefrom in the light most favorable to the party opposing summary judgment." Mathews v. Denver Newspaper Agency LLP, 649 F.3d 1199, 1204 (10th Cir. 2011) (quoting Lewis v. Circuit City Stores, Inc., 500 F.3d 1140, 1146 (10th Cir. 2007)). The court may neither make credibility determinations nor weigh the evidence. Gossett v. Oklahoma, 245 F.3d 1172, 1175 (10th Cir. 2001) (quotation omitted).

Federal courts sitting in diversity "seek to ascertain and apply . . . state law." Wade v. EMCASCO Ins. Co., 483 F.3d 657, 665 (10th Cir. 2007) (internal quotations omitted). This rule also applies if a federal court exercises supplemental jurisdiction over a state law claim in a federal question case. BancOklahoma Mortgage Corp. v. Capital Title Co., 194 F.3d 1089, 1103 (10th Cir. 1999). Accordingly, the Court will apply New Mexico law to the parties' contract and tort law claims.

III. Undisputed Material Facts

Relatively few of the facts in this case are agreed upon by the parties. In fact, the City disputes almost all of the "undisputed" facts alleged by Qwest. Accordingly, the Court relies onthe text of the agreements executed by the parties and correspondence exchanged between the parties in determining the majority of the facts addressed below.

Qwest has installed and maintained telecommunications facilities in the City's public rights-of-way for decades. (Compl., Doc. 95, at ¶ 1; Ans., Doc. 98, at ¶ 1). To allow Qwest access to the City's rights-of-way, Qwest and the City had a franchise agreement, negotiated and entered by Qwest's predecessor in 1975. (1975 Agreement, Doc. 264 Ex. 1). Section 9 of the 1975 Agreement describes the payments that Qwest must make in consideration for its use of the public rights-of-way. Qwest was to pay a franchise fee of two percent of Qwest's annual "gross receipts."² (Id. at 5:28). The 1975 Agreement goes on to state, "'Gross receipts' shall include all revenues received from local exchange services." (Id. at 5:28-29). The phrase "local exchange revenues" comes up again later in the agreement: "Upon annexation of territory to the City of Santa Fe, local exchange revenues received from subscribers located within the annexed area shall be included in the base for computation of payments due to the City." (Id. at 6:29-32). However, the phrase "local exchange services" is not specifically defined.

Pursuant to Section 9 of the 1975 Agreement, Qwest was also required to make a minimum payment, set at $83,160 for the first year of the agreement and increasing 8% annually for the four franchise years thereafter. (Id. at 5:30-6:12). Following the expiration of the five-year period, the minimum payment was to be "based upon the linear average annual percentage growth of the Company's gross receipts in the Santa Fe franchise area during the five-year period immediately preceding." (Id. at 6:7-9). Payments were to be made quarterly and, in the fourth quarter, the balance of the payment necessary to satisfy the required minimum would be paid. (Id. at 6:14-19). The parties refer to this as a "true-up" payment.

As part of the consideration for Qwest's payments, the 1975 Agreement included a provision that:

The foregoing payments shall be in lieu of any and all other franchise, license, privilege, instrument, occupation, excise or revenue taxes and all other exactions (except general ad valorem property taxes, special assessments for improvements, any occupation tax imposed on advertising revenues, and reasonable payments as required by appropriate City ordinance to pay the City for restoration of paving cuts) upon the business, revenue, property, lines, installations, systems, conduits, pipes, fixtures and other appurtenances of the Company or any part thereof in said City during the term of this franchise.

(Id. at 6:20-28). Nevertheless, it is undisputed that throughout Qwest's relationship with the City, since at least 1993 to the present, Qwest submitted monthly payments to the State of New Mexico for amounts owed under the gross receipts tax ordinances enacted by the City ("GRT Ordinances"). (Barton Decl. at ¶ 31). Under the GRT ordinances, Qwest paid the City between $253,826.13 and $537,918.78 annually. (Id. at ¶ 32).

The 1975 Agreement includes an expiration date: April 9, 2000. (1975 Agreement at 8:1-2). However, included in Section 9, the 1975 Agreement states that Qwest shall pay the City "during the term hereof, and until such time as a succeeding franchise ordinance is adopted, two percent (2%) per annum of the Company's gross receipts." (Id. at 5:25-28).

In 1998, prior to the expiration of the 1975 Agreement, the City enacted a new ordinance intended to govern all future access to public rights-of-way by telecommunication service providers, including Qwest ("1998 Ordinance"). The 1998 Ordinance constituted a shift in the rules governing the use of the City's rights-of-way by telecommunication service providers. The City had previously operated under a franchise system, exemplified by the 1975 Agreement; under the 1998 Ordinance, telecommunication service providers were required to register with the City and apply for a lease to install or maintain telecommunications facilities. Qwest v. Santa Fe, 224 F. Supp. 2d 1305, 1309 (D.N.M. 2002) ("Santa Fe I").

Qwest brought an action in federal court challenging the 1998 Ordinance as a violation of the Telecommunications Act, 47 U.S.C. § 253. See id. While the litigation was pending, on July 26, 2000, Qwest and the City executed an Interim Agreement. The Interim Agreement acknowledges that the 1975 Agreement "has expired." (Interim Agreement, Doc. 264 Ex. 2, at 1). In order to ensure that telecommunications services were provided to City residents, the parties agreed to preserve the status quo. (Id.) Qwest agreed to continue to pay "quarterly payments as per the expired Franchise Agreement." (Id. at ¶ 3). The Interim Agreement provided that, "[u]pon resolution of the Declaratory...