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New York State Thruway Authority v. Level 3 Communications

August 11, 2010

NEW YORK STATE THRUWAY AUTHORITY, PLAINTIFF,
v.
LEVEL 3 COMMUNICATIONS, LLC, DEFENDANT.



The opinion of the court was delivered by: Randolph F. Treece United States Magistrate Judge

MEMORANDUM-DECISION and ORDER

On October 14, 2009, the New York State Thruway Authority (hereinafter NYSTA), a public authority, filed a Complaint against Level 3 Communications, LLC (hereinafter Level 3), in New York State Supreme Court alleging a breach of contract.*fn1

Afterwards a Summons and Complaint were served and Level 3 removed this litigation to this Federal District Court. See generally Dkt. No. 1, Not. of Removal & Compl. Presently before this Court is Level 3's Motion to Stay this litigation, resting upon the doctrine of primary jurisdiction, dkt. no. 14,which NYSTA opposes, dkt. nos. 15 & 16. Level 3 further filed a Reply. Dkt. No. 17.*fn2

I. BACKGROUND

Fundamentally, there is little, if any, disagreement as to facts relative to this Motion. In a broader context, this lawsuit concerns the establishment of broadband networks, a fiber optic backbone network, along the New York State Thruway, which spans approximately 570 miles.*fn3

A. Contractual Rights

In October 1995, NYSTA entered into an agreement with Adesta Communications, Inc. (hereinafter Adesta)*fn4 granting Adesta authority to develop, operate, and maintain communications network along the Thruway. In exchange for this right of way, Adesta agreed to pay NYSTA a share of the user's fee. Then, in 1999, Adesta entered into two interrelated agreements with Williams Communications, Inc. (hereinafter Williams), pertaining to a new fiber-optic backbone network which would be owned and operated by Williams along the same Thruway corridor. The first agreement -- entitled "User Agreement for Innerduct" --covered the portions of the network to be deployed on NYSTA's right-of-way. To distinguish this agreement from the second, the parties referred to this agreement as the "On-NYSTA User Agreement" (hereinafter On-NYSTA). The second agreement -- entitled "User Agreement for Innerduct and Dark Fibers, also referred to as "OffNYSTA User Agreement (hereinafter Off-NYSTA)" -- covered the portion of the network that would not be located on NYSTA's right-of-way.

Under the On-NYSTA agreement, Williams acquired an indefeasible right of use (IRU) covering two vacant innderducts and 48 strands of dark fiber on Adesta's planned communications network along this thoroughfare. In addition, Adesta agreed to install fiber-optic cable supplied by Williams. In exchange, Williams was required to pay Adesta for the IRU and an installation fee totaling $31 million. Of that $31 million, NYSTA was entitled to a fee which ranged between $8.25 million and $15 million. The result of this agreement was a high-capacity network (hereinafter Backbone Network) which covered 520 miles on NYSTA's right-of-way.

Williams believed that without additional interconnection points, it could not properly operate the Backbone Network. Therefore, Williams planned to acquire 13 sites adjacent to NYSTA's right-of-way for "regeneration" facilities that would be used to regenerate optical signals along the Backbone Network. Williams concluded that without these "regeneration" facilities, this Network would be unusable. In order to establish these "regeneration" facilities and to make the proper connections to the Backbone Network, Williams was advised that they would have to obtain separate occupancy permits from NYSTA at an additional cost. Although Level 3, Williams' successor, now argues that this additional charge was unreasonable and inconsistent with the terms of the On-NYSTA agreement, Williams executed occupancy permits for 17 additional connections. Each of these additional occupancy permits, which identified the corresponding rent, ranging between $78 per foot per year to $34,000 per foot per year, generated a rider to the On-NYSTA Agreement.*fn5

In 2002, Williams filed for bankruptcy and later in that year emerged as WilTel Communications Group (WilTel). In December 2005, Level 3 acquired WilTel and took ownership of Williams's interest in the Backbone Network. Beginning in 2006, Level 3 began integrating the WilTel network and operations, but, within a year, disputed the right-of-way payments as unreasonable and discriminatory and, thus, in contravention of federal law. Level 3 stopped making payments to NYSTA yet continued to use the Network. Though there were attempts to settle the matter, all efforts have thus far failed.

B. Petition before Federal Communication Commission (FCC)

By a letter, dated July 7, 2009, NYSTA advised Level 3 that $2,070,266 was due and owing and threatened litigation. Dkt. No. 8, Am. Compl. at ¶¶ 18-20. Within a matter of weeks, on July 23, 2009, Level 3 filed a Petition For a Declaratory Ruling with the FCC that the right-of-way rents imposed by the NYSTA are preempted under 47 U.S.C. § 253.*fn6 Dkt. No. 14, Ex. A. Pet. The crux of Level 3's Petition is that the Riders are unreasonable, discriminatory, divorced from prevailing market rates, and should be preempted under § 253 which states, in part:

No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.

Id. at § 253(a).

****

If, after notice and an opportunity for public comment, the Commission determines that a State or local government has permitted or imposed any statute, regulation, or legal requirement that violates subsection (a) or (b) of this section, the Commission shall preempt the enforcement of such statute, regulation, or legal requirement to the extent necessary to correct such violation or inconsistency.

Id. at § 253(d).

Essentially, pursuant to these subsections, either the FCC or a court may preempt enforcement of any state or local statute, regulation, or "legal requirement" that prohibits or has the effect of prohibiting the ability of an entity to provide either intrastate or interstate communications services. In this respect, Level 3 charges that the rents associated with the Riders constitute such a "legal requirement" that has interdicted its ability to provide telecommunications services to various rural and smaller communities in Upstate New York.

On October 15, 2009, NYSTA filed its opposition to Level 3's Petition, relying upon the propositions that: (1) this is a contract dispute that should be decided by a court and not the FCC; (2) the FCC does not have jurisdiction because this matter does not fall within § 253(a); (3) even if jurisdiction is found, Level 3 cannot meet its burden under § 253(a); and (4) the rent is competitively neutral, nondiscriminatory, and reasonable, thus excepted from preemption by § ...


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