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May 16, 2003


The opinion of the court was delivered by: Frederick J. Scullin, Jr., Chief United States District Judge.



Plaintiffs-Counter-Defendants TC Systems, Inc. and Teleport Communications New York (collectively, "Plaintiffs" or "TCG") commenced this action on December 22, 2000, against Defendant-Counter-Claimant Town of Colonie, New York ("Defendant" or "the Town"), alleging that the Town's Local Law No. 13 of 1999 ("Local Law No. 13") and Draft Franchise Agreement ("Draft Franchise") violate both state and federal law. Specifically, Plaintiffs' Amended Complaint contains twelve causes of action asserting various violations of § 253 of the Federal Telecommunications Act of 1996 (the "TCA"), New York State law and the United States Constitution.

In response to Plaintiffs' Amended Complaint, Defendant filed counterclaims alleging that Plaintiffs have violated Section 27 of the New York Transportation Corporations Law ("Section 27") and Local Law No. 13.


Plaintiffs are wholly owned subsidiaries of AT&T corporation. Plaintiff TC Systems, Inc. ("TC Systems") is a provider of telephone and telecommunications services and, as such, is classified as a Transportation Corporation under New York Transportation Corporations Law.*fn1 Plaintiff TC Systems is authorized to erect, construct, own, use and maintain lines for telephone purposes within the State of New York under New York Transportation Corporations Law. See N.Y. Transp. Corp. Law §§ 2, 25, 27 (McKinney 2002).*fn2 Plaintiff Teleport Communications New York ("TC New York") is a New York General Partnership organized under the laws of New York State. TC New York provides telephone and telecommunications services to the public.

In August 1999, TC Systems applied for permission to construct and operate facilities for the provision of telephone and telecommunications services within the Town pursuant to the Town's then-existing laws. Subsequently, in November 1999, the Town adopted Local Law No. 13, which implemented regulations governing the issuance of franchises to construct, operate and maintain facilities for the provision of telecommunications services within the Town. See Local Law No. 13. Under the terms of Local Law No. 13, telecommunications providers are required to obtain a franchise from the Town as a prerequisite to using or occupying the Town's rights-of-way as well as installing, constructing, operating or maintaining equipment in the Town's rights-of-way.

On or about September 11, 2000, in an attempt to facilitate the initiation of construction during the pendency of its application, TC Systems sent the Town a proposed interim agreement which the Town subsequently rejected. By letter dated September 22, 2000, the Town informed TC Systems that it had misplaced its application and requested that TC Systems submit another application pursuant to Local Law No. 13. TC Systems did not resubmit the application as requested. It is undisputed that TC New York has never submitted an application for a franchise or license to the Town.

Pursuant to Local Law No. 13, because Plaintiffs do not have the mandatory franchise, they are prohibited from using, occupying, or constructing facilities in the Town's rights-of-way. However, notwithstanding their failure to procure a franchise, Plaintiffs concede that they are currently providing telecommunications services to at least one customer in the Town. Moreover, Plaintiffs admit that some of their facilities were constructed within the Town as early as 2001.*fn3

The present motions concern the validity of Local Law No. 13 and the Town's Draft Franchise, as well as Plaintiffs' unauthorized usage of the Town's rights-of-way.

A. Local Law No. 13

Local Law No. 13 prohibits any telecommunications provider from (1) using or occupying the Town's rights-of-way, (2) installing, constructing, operating and maintaining equipment in the rights-of-way, and (3) offering telecommunications services for sale or resale to any other person without a franchise and/or license granted by the Town. See Local Law No. 13, § 173-3(B).

Pursuant to Local Law No. 13, in order to obtain a franchise from the Town, a telecommunications provider must complete an application form which must include, inter alia, (1) the applicant's name, address, and telephone number; (2) a description of the telecommunications services proposed to be provided; (3) a description of the proposed franchise and/or license area or a description of the specific rights-of-way and/or portions thereof proposed to be used; (4) a proposed construction schedule; (5) plans and profiles showing the proposed location of the telecommunications system and all existing utilities within the rights-of-way; (6) the ownership of the applicant and identification of all affiliated persons; and (7) an engineer's estimated cost of the proposed project. See id. at § 173-6(C). There is also a non-refundable application fee. See id. at § 173-6(D).

Completed applications are then in the hands of the Department of Public Works (the "DPW"), which "may then consider" such factors it deems "appropriate in the public interest," provided that such factors are "consistent with applicable law," including, inter alia, (1) the applicant's legal, financial, technical and other appropriate qualifications; (2) the applicant's ability to maintain the property of the Town in good condition throughout the term of the franchise or license; (3) any services or uses of the rights-of-way that may be precluded by the grant of the franchise or license; (4) the adverse impact of the proposed franchise or license on the efficient use of the rights-of-way or utilities in the present and the future; (5) the applicant's willingness and ability to meet construction and physical requirements and town highway and drainage standards and to abide by all lawful conditions, limitations, requirements and policies with respect to the franchise or license; (6) the adequacy of the terms and conditions of the proposed franchise agreement or license to protect the public interest, consistent with applicable law; and (7) any other public interest factors or considerations that the Town has a lawful right to consider and that the Town deems pertinent for safeguarding the interests of the Town and the public. See id. at § 173-7. The DPW is then empowered to make "such investigations and take . . . such other steps as the town deems necessary or appropriate to consider and act on applications for franchises[.]" Id. at § 173-8. The DPW "may [also] require the applicant to furnish additional information[.]" Id.

The applicant and the Town will then negotiate an agreement in accordance with the Local Law. See id. at § 173-9. However, the Town may still "reject any application which is incomplete or otherwise fails to comply with applicable law[s], . . . rules, [and] regulations[.]" Id. A public hearing will then be held and then, upon completion of these steps, "the Town Board may grant or deny the franchise . . . and may specify the conditions under which the franchise or license is granted." Id. at § 173-10(B).

Once the Franchise Agreement is executed and approved, it is subject to several conditions and requirements. Most notably, § 173-11(B) enumerates the records/reports that the franchisee must provide to the Town, including an outside audit of revenue for the system in the Town and "such other information relating to the franchisee or licensee as the town may consider useful." Id. at § 173-11(B)(1)-(9). Further, pursuant to Local Law No. 13, the franchisee is required to "keep the town fully informed as to all matters in connection with or affecting the installation, construction, reconstruction, removal, maintenance . . . and repair of [the] franchisee's . . . telecommunications system, franchisee's accounting methods . . . and the recording and reporting by franchisee of all revenues[.]" Id. at § 173-11(B).

Local Law No. 13 also requires a provider to obtain the Town's consent prior to any assignment or transfer of a franchise. Local Law No. 13 further provides that such an assignment or transfer will occur "only on such conditions as may therein be prescribed." Id. at § 173-11(E)(2).

Finally, Local Law No. 13 contains a fee provision that requires a franchisee to pay $5,000 or 5% of gross revenues, whichever is greater. See id. at § 173-13.

B. The Draft Franchise

Plaintiffs also challenge provisions of the Draft Franchise that the Town seeks to impose on all prospective telecommunications providers. Plaintiffs challenge the Draft Franchise's material terms and conditions including, inter alia, the provisions that (1) restate the requirements of Local Law No. 13, (2) require Plaintiffs to give the Town two dark single model fiber conductors and pay all third-party costs that the Town has incurred during the franchise process, (3) require Plaintiffs to waive their right to any claim or proceeding challenging the terms of the Local Law or Draft Franchise as a prerequisite to obtaining a franchise, and (4) reserve the Town's right to terminate the franchisee's service at any time.

Presently before the Court are (1) Plaintiffs' motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on their First, Second, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, and Twelfth Causes of Actions;*fn4 (2) Defendant's motion for summary judgment on Plaintiffs' claims and Defendant's counterclaims; and (3) Plaintiffs' cross-motion for summary judgment on Defendant's counterclaims. The Court heard oral argument on January 24, 2003, at which time, it reserved decision. The following constitutes the Court's written determination regarding the pending motions.


A. Standard of review

A moving party will be granted summary judgment if there is no genuine issue of material fact and the party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). The burden is on the moving party to demonstrate that no genuine issue of material fact exists. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, the non-moving party must come forward with specific facts demonstrating that a genuine issue exists for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). The ultimate inquiry is whether a reasonable jury could find for the non-moving party based on the evidence presented. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986).

"All reasonable inferences and any ambiguities are drawn in favor of the nonmoving party." Thompson v. Gjivoje, 896 F.2d 716, 720 (2d Cir. 1990) (citation omitted). With these considerations in mind, the Court will address the present motions.

B. Ripeness

Defendant argues that Plaintiff TC New York's claims should be dismissed as unripe because TC New York has not, to date, applied for a franchise under the Local Law. The "ripeness" requirement is meant "to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements[.]" Abbott Labs. v. Gardner, 387 U.S. 136, 148 (1967). To determine whether TC New York's claims are "ripe for review" the Court must determine (1) if the issues are fit for judicial decision and (2) if the parties will suffer a hardship if the Court declines to hear their claims at this time. City of Auburn v. Qwest Corp., 260 F.3d 1160, 1171 (9th Cir. 2001) (citation omitted). However, before reaching these questions, "[t]he ripeness inquiry has a constitutional component . . . [which must be] address[ed] first[.]" Id.

The constitutional component of the ripeness inquiry is rooted in the "case or controversy" requirement of Article III which focuses on "whether the plaintiffs face `a realistic danger of sustaining a direct injury as a result of the statute's operation or enforcement[.]'" Id. The Supreme Court has established that where "promulgation of the challenged regulations presents plaintiffs with [an] immediate dilemma [of choosing] between complying with newly imposed, disadvantageous restrictions and risking serious penalties for violation" the constitutional component of ripeness is satisfied. Reno v. Catholic Soc. Servs., Inc., 509 U.S. 43, 57 (1993) (citations omitted). In the present case, TC New York is in this precise predicament as it faces the dilemma of either complying with the franchise process or suffering the costs and sanctions of noncompliance. Plaintiff TC New York is claiming injury based on the very existence of the Local Law. Thus, the constitutional component of the inquiry is satisfied. Second, TC New York's claims present a pure question of law — are Local Law No. 13 and the Draft Franchise preempted by federal or state law. Thus, the controversy is clearly fit for judicial decision. No purpose would be served by refraining from deciding the matter at this time. Local Law No. 13 has already been enacted; TC New York is subject to it; and the complete text is before the Court.

Finally, the hardship of withholding review is undeniable as it is likely to either prohibit TC New York from providing profitable service within the Town or subject it to sanctions for doing so without a franchise.

Moreover, the decision that TC New York's claims are ripe is consistent with what other courts, faced with a similar challenge, have held. See City of Auburn, 260 F.3d at 1170-73 (holding that an action challenging local ordinances was ripe for review despite the fact that plaintiffs had not yet applied for a permit).

Thus, having determined that this case is ripe for review,*fn5 the Court proceeds to consider the merits of the present motions.

C. Preemption by federal law

Congress passed the TCA in 1996 in order "to end the monopolies in local telephone services and to benefit consumers by fostering competition between telephone companies in cities throughout the United States[.]" AT&T Communications of the Southwest, Inc. v. City of Dallas, 8 F. Supp.2d 582, 585 (N.D.Tex. 1998). In furtherance of this goal, Congress implemented restrictions on the authority of local governments to limit the ability of telecommunications companies to do business in local markets. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1999). Section 253 of the TCA "embodies the balance between Congress' `new free market vision' and its recognition of the `continuing need for state and local governments to regulate telecommunications providers on grounds such as consumer protection and public safety.'" TCG New York, Inc. v. City of White Plains, 125 F. Supp.2d 81, 87 (2000), aff'd in part, rev'd in part on other grounds, 305 F.3d 67 (2d Cir. 2002) (quotation omitted). The plain terms of § 253 preempt many local laws; however, notwithstanding this general prohibition, local governments retain some regulatory authority. Under § 253, all state and local regulations that prohibit or have the effect of prohibiting any company's ability to provide telecommunications services are preempted unless such regulations fall within either of the statute's two "safe harbor" provisions, §§ 253(b) and (c). See City of Auburn, 260 F.3d at 1175. Only § 253(c), pertaining to local regulation of rights-of-way, is applicable to the case at hand. See id. at 1176.

Thus, as the Second Circuit has clarified, the appropriate methodology for resolving the present claims is to first determine whether the Town's regulations fall within the proscription of § 253(a) and then, if they do, to determine whether certain provisions are nevertheless permissible under section § 253(c). See TCG New York, Inc. v. City of White Plains, 305 F.3d 67, 77 (2d Cir. 2002).

1. Section 253(a) — Whether the Town's Local Law and Draft Franchise prohibit or have the effect of prohibiting telecommunications services

Section 253(a) places a limitation on the Town's authority to regulate telecommunications services. Specifically, § 253(a) provides that no "local statute . . . may prohibit or have the effect of prohibiting the ability of any entity to provide . . . telecommunications service." 47 U.S.C. § 253(a) (emphasis added). To determine whether an ordinance "has the effect of prohibiting the provision of telecommunications services," the test, as enumerated by the Second Circuit, is "`whether the ordinance materially inhibits or limits the ability of any competitor or potential competitor to compete in a fair and balanced legal and regulatory environment.'" TCG New York, 305 F.3d at 76 (quotation omitted). The burden of showing that a municipality has violated § 253(a) is on the party seeking preemption, in this case, Plaintiffs. See New Jersey Payphone Ass'n Inc. v. Town of West N.Y., 130 F. Supp.2d 631, 636 (D.N.J. 2001) (citation omitted).

Plaintiffs point to the following provisions of Local Law No. 13 which they contend, individually, and as a whole, operate to effectively prohibit telecommunications services:

(1) § 173-3(E) which reserves the Town Board's right to unilaterally modify any provision of Local Law No. 13 by amendment. See Local Law No. 13, § 173-3(E).
(2) § 173-7(A) and § 173-7(A)(6) which provide that the DPW "may consider such factors as it deems appropriate and in the public interest, provided that such factors are consistent with applicable law, including . . . [a]ny . . . public interest factors or considerations that the town has a lawful right to consider and that are deemed pertinent by the town for safeguarding the interests of the town and the public." Id. at § 173-7(A)(6).
(3) ยง 173-8 which delegates to the DPW the power to "make such investigations and take or authorize the taking of such other steps as the town deems ...

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