United States District Court, D. Maryland
FREDERICK MOTZ UNITED STATES DISTRICT JUDGE.
Zayo Group LLC, Broadwing LLC, Centurylink Communications
LLC, Comcast of Baltimore City LLC, Crown Castle NG Atlantic
LLC, 24/7 Mid-Atlantic Networks LLC, Fiberlight LLC, Level 3
Communications LLC, Level 3 Telecom of Maryland LLC, Quantum
Telecommunications Inc., Telcove Operations LLC, and Wiltel
Communications LLC (collectively "plaintiffs" or
"communications providers") bring suit against
defendant Mayor and City Council of Baltimore ("the
City") relating to the City's increase of
plaintiffs' conduit rates. Now pending is the City's
motion to dismiss plaintiffs' complaint. The parties have
fully briefed the motion, and no oral argument is necessary,
See Local Rule 105.6. For the reasons below, the
motion is granted in part and denied in part.
parties' dispute arises out of the City of
Baltimore's September 2015 decision to more than triple
plaintiffs' conduit fee rates. The City owns and
maintains a system of underground conduit-dating back to
1898-that provides the infrastructure for a labyrinth of
electric, telephonic, and fiber optic connections owned by
communications providers. By ' Baltimore City ordinance,
communications providers-aside from the incumbent,
Verizon-are required to place all such connections in the
City-owned underground conduit, Baltimore City Code, Art. 26,
§ 23-7, and pay leasing fees to the City for occupying
the conduit. Plaintiffs allege that, as a practical
matter, the City requires them to place their connections in
the City's underground conduit and functionally prevents
them from using or interconnecting with Verizon's conduit
system. (ECF No. 1, ¶¶ 32, 56). Further, the
plaintiffs allege that when they build their own conduit in
places the city-owned system does not reach, the City forces
them to turn over ownership of the conduit to the City and
then pay fees to occupy the conduit space they themselves
built. Id. at ¶ 37.
leasing agreements with the City, the plaintiffs agreed to
pay leasing rates based on their "share of the
City's actual cost of owning, operating, and maintaining
[the conduit], in proportion to the amount of conduit space
occupied by each user." Id. at ¶
131. Plaintiffs' fee payments are placed in the City
Conduit Enterprise Fund, where they are used for maintenance
and operation of the system. The Baltimore City Board of
Estimates ("BOE") is responsible for setting
plaintiffs' rates and the Baltimore City Department of
Transportation ("DOT") is responsible for
maintaining and operating the conduit.
September 2015, the BOE considered and approved a DOT
proposal to set the conduit lease fee at $3.33 per linear
foot per year-a more than tripling of the previous conduit
fee of $.98 per linear foot. This significant increase came
after the rate had only increased ' incrementally from
$.83 to $.98 over the past decade. (ECF No. 1, ¶ 67).
The DOT argued that the proposed rates had "been
verified to accurately reflect costs associated with
operating and capital maintenance as determined to be
necessary to bring the system into a good state of repair
over the next 8 to 10 years." (ECF No. 14, p, 5)
(internal quotation marks omitted). Plaintiffs contend that
this increase came as a complete surprise to them-the
increase was significantly higher than previous increases
and, according to plaintiffs, they learned of the BOE hearing
discussing the increase only two days before it occurred.
(ECF No. 1, ¶¶ 73, 75).
the new fee came into effect starting November 2015,
plaintiffs, with the exception of Quantum Telecommunications,
continued to pay conduit fees at the old rate of $.98 per
linear foot. Plaintiffs sent the City a protest letter
explaining that they were continuing their payments at the
old rate and proposed meeting with the City to discuss the
increase. Id. at ¶82. Plaintiffs also requested
information from the City, pursuant to the Maryland Public
Information Act, related to the cost basis for the rate
increase. After plaintiffs sent the letter, the
parties met but did not reach an agreement on the disputed
fees. Id. at ¶ 84.
January 2016, Chief City Solicitor Victor Tervala sent
letters to all but one of the plaintiffs alleging that they
had breached their contracts and stated that if they did not
pay the new conduit fees, the City would terminate their
lease agreements and remove their communications facilities
(i.e., their electric, telephonic, and fiber optic
connections) from the conduit. Id. at ¶ 89. In
response, plaintiffs suggested more negotiations on the
matter and offered to pay outstanding fees on the condition
that the City correct any overpayments if the conduit fee
increase was deemed unlawful. Id. at ¶¶
92-93. According to plaintiffs, Tervala ' rejected their
proposal and said that if plaintiffs paid the new fees, the
City would immediately spend them. Id. at ¶ 94.
February, the City once more reiterated its position that it
refused to accept anything less than full payment. The City
imposed a deadline for payment of March 1, 2016-after that
day, the City said it would start removing the
plaintiffs' communications facilities from the conduit.
Id. at ¶ 95. The parties met again on February
19, this time the plaintiffs offered to place the disputed
funds in escrow pending resolution of the parties'
dispute, but the City again declined plaintiffs'
settlement offer. On February 25, the City yet again sent out
communications to plaintiffs holding firm to its March 1
deadline and also threatened to refuse to issue any more
construction permits to the plaintiffs if they did not pay
the increased rate. Id. at ¶103.
filed the instant complaint on February 29, 2016 against the
City. The complaint asserts twelve counts. Plaintiffs allege
violations of the Telecommunications Act of 1996, 47 U.S.C.
§ 151 et seq. ("TCA") (Count I),
Baltimore City Charter art. VI, §3(b) (Count V), the
City's police power (Count VI), the Fifth Amendment
(Count VII), the First Amendment (Count VIII), 42 U.S.C.
§§ 1983 and 1988 (Count IX), and counts of tortious
interference with economic and contractual relations (Count
X), unjust enrichment (Count XI), and declaratory judgment
(Count XII). Plaintiff Comcast asserts that the City has
violated § 542 of the Cable Act of 1992, 47 U.S.C.
§521 et seq. (Count II), and breached their
contract and franchise agreement (Count IV). Plaintiffs Zayo,
Level 3, Crown Castle, FiberLight, and Quantum also allege a
breach of contract claim (Count III).
the filing of the lawsuit, the parties agreed that plaintiffs
would pay the disputed fees-the difference between the new
fees and old fees-into escrow pending resolution of '
plaintiffs' request for a preliminary injunction.
(See ECF No. 20, p. 9). On May 17, 2016, 1 held a
hearing on plaintiffs' request for a preliminary
injunction. At the end of the hearing, I ordered continuance
of the escrow agreement. Currently pending is the City's
motion to dismiss (ECF No. 14) and plaintiffs' motion to
strike or for leave to file surreply (ECF No. 34).
City moves to dismiss plaintiffs' complaint under Rule
12(b)(6). To survive a Rule 12(b)(6) motion, a complaint,
relying on only well-pled factual allegations, must state at
least a "plausible claim for relief." Ashcroft
v. Iqbal, 556 U.S. 662, 679 (2009). The "mere
recital of elements of a cause of action, supported only by
conclusory statements, is not sufficient to survive a motion
made pursuant to Rule 12(b)(6)." Walters v.
McMahen, 684 F.3d 435, 439 (4th Cir. 2012). To determine
whether a complaint has crossed "the line from
conceivable to plausible, " a court must employ a
"context-specific inquiry, " drawing on the
court's "experience and common sense."
Iqbal, 556 U.S. at 680. When ruling on a Rule
12(b)(6), a court accepts "all well-pled facts as true
and construes these facts in the light most favorable to the
plaintiff in weighing the legal sufficiency of the
complaint." Nemet Chevrolet, Ltd. v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir.
2009). A court, however, does not afford the same deference
to legal conclusions. Iqbal, 556 U.S. at 678.
as here, a defendant files a Rule 12(b)(1) motion to dismiss
for lack of subject-matter jurisdiction, "plaintiff
bears the burden of proving that subject matter jurisdiction
properly exists in the federal court." Biktasheva
v. Red Square Sports, Inc., 366 F.Supp.2d 289,
294 (D. Md. 2005). A district court should grant a Rule
12(b)(1) motion only when "the material jurisdictional
facts are not in dispute and the moving party is entitled to
prevail as a matter of law." Id. (internal
quotation marks omitted)
Plaintiffs' Motion to Strike or File Surreply
have filed a motion to strike parts of the City's Reply,
or, in the alternative, file a surreply. Plaintiffs contend
that the City, for the first time in its Reply brief, raised
new arguments regarding the deference owed to the City's
rate-setting powers. (See ECF No. 34, p. 2; see
also ECF No. 28, pp. 3-8), The City disagrees, arguing
that it was merely responding to plaintiffs' contentions
in their Opposition. (ECF No. 37, p. 3).
ordinary rule in federal courts is that an argument raised
for the first time in a reply brief or memorandum will not be
considered." Clawson v. FedEx Ground Package Sys.,
Inc., 451 F.Supp.2d 731, 734 (D. Md. 2006). The
rationale underlying this rule is "to avoid prejudice to
the party who is not afforded a chance to rebut a new
argument." EEOC v. Freeman, 961 F.Supp.2d 783,
801 (D. Md. 2013). A court, however, has discretion to
deviate from this rule and consider a previously unraised
argument, especially when the other party has had an
opportunity to respond. See Clawson, 451 F.Supp.2d
at 734. Here, plaintiffs have attached to their motion a
proposed surreply responding to the City's new arguments.
Plaintiffs therefore will have had an adequate opportunity to
respond to the City's new arguments if I grant their
motion to file a surreply (which the City does not oppose).
And I will have the benefit of considering the City's new
arguments if I deny plaintiffs' motion to strike.
Accordingly, I deny plaintiffs' motion to strike and
grant their motion to file a surreply. See Minter v.
Wells Fargo Bank, N.A., 283 F.R.D. 268, 270 n.3 (D. Md.
2012) (granting a motion for leave to file a surreply in like
Plaintiffs' Motion to Dismiss
twelve claims can be broken down into five categories. The
first category encompasses plaintiffs' TCA claim (Count
I), wherein they allege that the City's fee increase, as
well as its discriminatory treatment of plaintiffs in favor
of Verizon, compels preemption of the City's conduit
regulations. The second category is plaintiffs' breach of
contract, violation of police power, and unjust enrichment
claims (Counts III, VI, and XI). Each of these claims turns
on whether the City's revenues from the new conduit fee
exceed its actual cost for maintaining and operating the
conduit. The third category of claims is plaintiff
Comcast's Cable Act and breach of contract claims (Counts
II and IV), which allege that the City's conduit fees are
illegal franchise fees under the Cable Act, The fourth
category is plaintiffs' Fifth Amendment (Count VII),
First Amendment (VIII), 42 U.S.C. §§1983 and 1988
(Count IX), and tortious interference with economic and
contractual relations (Count X) claims, which allege that the
City violated plaintiffs' legal rights by threatening to
remove their communications facilities from the conduit. The
last category of claims includes a claim that the City
violated art. VI, §3(b) of the Baltimore City Charter
(Count V) by failing to proffer notice of the conduit fee
increase and an overarching claim for declaratory judgment
Plaintiffs' TCA Claim (Count I)
contend that the City's regulatory scheme is
preempted by the TCA to the extent it requires
them to install and use communications facilities in the
City's conduit system, imposes fees that exceed the
City's cost to maintain and operate the conduit system,
and favors the incumbent telecommunications provider,
Verizon, over them. (ECF No. 1, ¶ 116). For its part,
the City argues that plaintiffs have failed to plead a
plausible TCA claim and that the City's actions are
entitled to deference under the TCA. Because I find that the
plaintiffs plead a plausible TCA claim, however, Count I
enacted the TCA "to ensure that telecommunications
providers have competitive access to state and local
telecommunications markets." Puerto Rico Tel. Co. v.
Municipality Of Guayanilla, 450 F.3d 9, 15 (1st Cir.
2006). The TCA was a manifestation of Congress's intent
to "end[ ] the States' longstanding practice of
granting and maintaining local exchange monopolies."
AT&T Corp. v. Iowa Utils. Bd, 525 U.S. 366, 405
(1999) (Thomas, J., concurring in part, dissenting in part).
The section of the TCA at issue here, section 253, puts in
place a general bar to local government actions that
"prohibit or have the effect of prohibiting the ability
of any entity to provide any interstate or intrastate
telecommunications service." 47 U.S.C. § 253(a).
§ 253(a) is "a clear expression by Congress of an
intent to preempt local ordinances which prohibit the
provision of telecommunications services." Qwest
Corp. v. City of Santa Fe, New Mexico, 380 F.3d
1258, 1269 (10th Cir. 2004). Subsection (c) of § 253, by
contrast, provides local governments with a safe-harbor from,
subsection (a)'s general prohibition, stating that:
Nothing in this section affects the authority of a State or
local government to manage the public rights-of-way or to
require fair and reasonable compensation from
telecommunications providers, on a competitively neutral and
nondiscriminatory basis, for use of public rights-of-way on a
nondiscriminatory basis, if the compensation required is
publicly disclosed by such government.
47 U.S.C. § 253(c). Put another way, subsection (c)
authorizes state and local governments "to regulate
telecommunication services on public property and to collect
compensation for its use, if certain parameters are
observed." Global Network Commc 'ns, Inc. v.
City of New York, 562 F.3d 145, 151 (2d Cir. 2009).
the Fourth Circuit has yet to formulate a legal standard for
an § 253(a) preemption claim, sister circuits have
determined that an § 253(a) claim involves two parts.
First, a court decides whether the "local provision in
question is prohibitive in effect." Qwest, 380
F.3d at 1269. To meet this requirement, a plaintiff
"need not show a complete or insurmountable prohibition
... but it must show an existing material interference with
the ability to compete in a fair and balanced market."
Level 3 Commc'ns, L.L.C. v. City of St. Louis,
Mo., 477 F.3d 528, 533 (8th Cir. 2007) (citing to the
FCC's interpretation of § 253(a)); see also
Qwest, 380 F.3d at 1269 (a provision "need not
erect an absolute barrier to entry in order to be found
prohibitive"). In Qwest, the Tenth Circuit
found that a "near quadrupling]" of cost was
sufficient to show that city regulations were prohibitive
because the increase in cost would "materially
inhibit" the provision of communications services. 380
F.3d at 1271.
plaintiff demonstrates that a regulatory action is
prohibitive, the burden shifts to defendant to show that the
regulation falls under the safe-harbor of § 253(c). To
carry its burden, a defendant must show that its action
relates to regulation of the public rights of way, is
"fair and reasonable, " and is imposed "on a
competitively neutral and nondiscriminatory basis."
Id. at 1272. If the local ...