Qwest Corporation v. City of Tucson , 434 F.3d 1176 ( 2006 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
QWEST CORPORATION, 
Plaintiff-Appellant,
v.
CITY OF SURPRISE, a municipal
corporation,
Defendant, No. 04-16940
and
CITY OF TUCSON, Arizona, a
 D.C. No.
CV-01-02500-JAT
municipal corporation; CITY OF OPINION
GLOBE, Arizona, a municipal
corporation; CITY OF MIAMI,
Arizona, a municipal corporation;
CITY OF NOGALES, Arizona, a
municipal corporation,
Defendants-Appellees.

Appeal from the United States District Court
for the District of Arizona
James A. Teilborg, District Judge, Presiding
Argued and Submitted
December 6, 2005—San Francisco, California
Filed January 13, 2006
Before: Stephen S. Trott, Thomas G. Nelson, and
Richard A. Paez, Circuit Judges.
Opinion by Judge Trott
707
710 QWEST CORP. v. CITY OF TUCSON
COUNSEL
David R. Goodnight, Stoel Rives LLP, Seattle, Washington,
for the plaintiff-appellant.
John H. Ridge, Stoel Rives LLP, Seattle, Washington, for the
plaintiff-appellant.
Joseph Van Eaton, Miller & Van Eaton, PLLC, Washington,
D.C., for defendants-appellees the City of Tucson.
QWEST CORP. v. CITY OF TUCSON 711
Thomas K. Irvine, Irvine Law Firm, PA, Phoenix, Arizona,
for defendants-appellees Cities of Nogales, Miami and Globe.
OPINION
TROTT, Circuit Judge:
OVERVIEW
Qwest Corporation (Qwest) appeals the district court’s
grant of summary judgment in favor of City of Tucson, City
of Miami, City of Globe, and City of Nogales (collectively
“the Cities”). Qwest contends that the Cities’ telecommunica-
tions licensing and franchise ordinances are preempted by
§ 253 of the Federal Telecommunications Act of 1996 (the
FTA). Qwest argues also that the Cities charge an improper
rental fee for use of the Cities’ rights-of-way. We have juris-
diction pursuant to 28 U.S.C. § 1291, and we disagree with
Qwest. The Cities’ subsequent amendments to the ordinances
exempt Qwest from the licensing and franchise ordinances,
rendering moot Qwest’s claims challenging these ordinances.
Additionally, the charges that the Cities impose upon Qwest
are taxes, not fees, so the Tax Injunction Act deprived the dis-
trict court of jurisdiction to consider their validity.
BACKGROUND
Qwest provides communication services to residents in the
Cities. Qwest, in conjunction with its predecessors-in-interest,
has provided telecommunications services throughout Ari-
zona since prior to Arizona’s statehood. In January 2002,
Qwest filed an amended complaint alleging that the Cities
were charging unlawful fees and imposing unlawful require-
ments on Qwest for use of the Cities’ rights-of-way.
The Cities charge Qwest for operating in their respective
712 QWEST CORP. v. CITY OF TUCSON
cities. The Cities’ ordinances imposing this charge are not
identical, but they are substantially similar.1 The amount of
the charge is determined as a percentage of Qwest’s gross rev-
enues and is as low as 2% and as high as 5%. Globe imposes
the charge on all telecommunications providers, but Miami
and Nogales charge only those telecommunications providers
using their rights-of-way. Tucson imposes a 2% charge on all
telecommunications providers, but charges an additional 1.5%
for rights-of-way users. Only Tucson’s ordinance is telecom-
munications specific; the other cities’ ordinances apply to all
public utility companies. Each of the Cities deposits the reve-
nues into its general fund, and none of the funds are ear-
marked for expenses related to the rights-of-way.
In addition to these charges, the Cities’ ordinances require
that certain telecommunications providers obtain licenses and
franchises before operating within the Cities. Qwest has
always maintained that these licensing and franchise require-
ments do not apply to it because it operates pursuant to a grant
of territorial franchise, which Qwest claims it received by
operating in Arizona before it became a state.
In 1997, Arizona enacted a statute exempting telecommuni-
cations providers operating pursuant to a territorial franchise
from local licensing and franchise requirements. Ariz. Rev.
Stat. Ann. § 9-582(E). Despite the Arizona statute, the Cities’
licensing and franchise ordinances remained unchanged and
continued to apply to Qwest when it filed this action.
Although the ordinances applied to Qwest, the Cities never
enforced them against Qwest.
After Qwest commenced this action, the Cities enacted new
ordinances exempting from their respective licensing and
franchise requirements telecommunications providers operat-
1
The challenged ordinances are section 19-1070(a) (Tucson); section 9-
150 (Nogales); Ord. No. 170, section 28 (Miami); and section 8-3-8(H)
(Globe).
QWEST CORP. v. CITY OF TUCSON 713
ing under a claim of territorial franchise. For example, Tuc-
son’s ordinance reads,
Section 7B-37. Exemption for pre-statehood tele-
communications providers.
The provisions of this chapter 7B shall not apply to
any telecommunications provider in connection with
the provision of wireline local exchange services
who is providing, and with its predecessors-in-
interest has been continuously providing, local
exchange service within the city since prior to Febru-
ary 14, 1912, under a claim of a territorial franchise.
These new ordinances brought the Cities’ ordinances in line
with state law.
After a series of motions for summary judgment, the dis-
trict court entered judgment in favor of the Cities on all
claims. The court concluded that the Cities’ charges were
taxes and therefore saved from preemption by § 601 of the
FTA. The court also dismissed Qwest’s claims challenging
Tucson’s licensing and franchise requirements as moot
because it found Qwest not subject to those ordinances. In a
separate order, the district court dismissed Qwest’s claims
against Globe, Nogales, and Miami, concluding the claims
were not ripe for review. The court noted it could also have
dismissed these claims as moot. After dismissing Qwest’s
underlying claims as moot or not ripe, the district court dis-
missed as moot Qwest’s § 1983 claim for damages. Qwest
appeals these rulings.
STANDARD OF REVIEW
The district court’s grant of summary judgment is reviewed
de novo, San Jose Christian Coll. v. Morgan Hill, 360 F.3d
1024, 1029 (9th Cir. 2004), and may be affirmed on any
ground supported by the record. Id. at 1030. Mootness and
714 QWEST CORP. v. CITY OF TUCSON
ripeness are questions of law also reviewed de novo. Foster
v. Carson, 347 F.3d 742, 745 (9th Cir. 2003) (mootness);
Chang v. United States, 327 F.3d 911, 921 (9th Cir. 2003)
(ripeness).
DISCUSSION
A. Mootness
Qwest asserts two main arguments to prove that its § 253
preemption arguments are not moot. First, Qwest argues that
the Cities’ ordinances excluding Qwest from the licensing and
franchise requirements are invalid under Arizona state law
because they constitute special legislation. If Qwest is correct,
its challenge to the licensing and franchise requirements
would not be moot because it would be subject to those
requirements. Second, Qwest argues its claims are not moot
because Qwest still faces a real threat of future liability under
the ordinances if its territorial franchise is adjudged invalid.
We are persuaded by neither argument.
1. Qwest Lacks Standing to Challenge the New
Ordinances
[1] Qwest argues that the Cities’ new ordinances granting
the exemption from the licensing and franchise requirements
violate the Arizona constitutional prohibition against special
legislation. Qwest, however, lacks standing to challenge the
enactment of the ordinances because it suffered no injury in
fact. A party must have standing as determined by federal law
when litigating in federal court, even if the party is challeng-
ing a state law. See Lee v. Am. Nat. Ins. Co., 260 F.3d 997,
1001-02 (9th Cir. 2001). The first standing requirement is that
the party suffered an injury in fact. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992). An injury in fact is “an
invasion of a legally protected interest which is (a) concrete
and particularized, and (b) actual or imminent, not conjectural
or hypothetical.” Id. (quotation marks and citations omitted).
QWEST CORP. v. CITY OF TUCSON 715
[2] Here, the challenged ordinances exempt Qwest from the
Cities’ licensing and franchise requirements, which is a bene-
fit not an injury. Qwest argues that the ordinances are dis-
criminatory because telecommunications providers that do not
qualify for the exemption must make burdensome disclosures.
While this contention might be true, Qwest suffers no injury
when its competitors are subjected to additional, costly
requirements. During oral argument, Qwest admitted that the
only harm Qwest suffered from the ordinances’ enactment is
that Qwest can no longer adjudicate the merits of its preemp-
tion claim, but the ordinances provide Qwest with the very
benefit it seeks on the merits—relief from the licensing and
franchise requirements. Because Qwest has not suffered an
injury in fact, it lacks standing to challenge the validity of the
Cities’ new ordinances under Arizona law.
2. New Ordinances Render Qwest’s Arguments Moot
Qwest contends that the district court erred in dismissing its
FTA claims against the Cities as moot or not ripe. Qwest
admits it is currently not subject to the Cities’ licensing and
franchise ordinances because it falls within the exception cre-
ated by section 7B-37, but argues it would become subject to
the challenged ordinances if its territorial franchise were to be
adjudged invalid by a future court. Although Nogales, Globe,
and Miami stipulate to the validity of Qwest’s territorial fran-
chise, Tucson makes no such concession. Qwest therefore
requests that we conclude that the Cities’ licensing and fran-
chise requirements are preempted by § 253(a) of the FTA to
eliminate the possibility that Qwest would be subject to the
ordinances in the future if somehow its territorial franchise
were to be invalidated. Qwest expressly chose not to adjudi-
cate the validity of its territorial franchise in this action.
“It is well settled that a defendant’s voluntary cessation of
a challenged practice does not deprive a federal court of its
power to determine the legality of the practice.” City of Mes-
quite v. Aladdin’s Castle, Inc., 455 U.S. 283, 289 (1982).
716 QWEST CORP. v. CITY OF TUCSON
“[I]n cases involving the amendment or repeal of a statute or
ordinance, mootness is ‘a matter relating to the exercise rather
than the existence of judicial power.’ ” Coral Constr. Co. v.
King County, 941 F.2d 910, 927 (9th Cir. 1991) (citations
omitted). A court may continue to exercise jurisdiction over
such a case where the balance of interests favor such contin-
ued authority. Id. “The party moving for dismissal on moot-
ness grounds bears a heavy burden.” Id. at 927-28.
[3] However, if a new law is enacted during the pendency
of an appeal and resolves the parties’ dispute, the case
becomes moot for lack of a live case or controversy. Kremens
v. Bartley, 431 U.S. 119, 128-29 (1977) (holding that enact-
ment of new statute during pendency of appeal “clearly”
mooted the claims); City of Auburn v. Qwest Corp., 260 F.3d
1160, 1174 n.8 (9th Cir. 2001) (“Because [the new ordinance]
grants Qwest a portion of the relief it seeks in its counter-
claim, that portion of the counterclaim might also be consid-
ered moot.”).
[4] Here, the Cities have met their “heavy burden” of show-
ing that Qwest’s claims are moot. First, there is no dispute
that Qwest is currently exempt from the challenged ordi-
nances. With respect to repose from future liability, Nogales,
Miami, and Globe admit to the validity of Qwest’s territorial
franchise, so Qwest need not worry about those cities chal-
lenging the validity of its territorial franchise. Although Tuc-
son refused to stipulate to the validity of Qwest’s territorial
franchise, it concedes Qwest is exempt under its ordinance
and that Qwest would lose this exemption only if Qwest’s ter-
ritorial grant were invalidated by a future court—a question
not before this Court. Therefore, any future liability is mere
speculation at this time.
Second, the Cities will not likely repeal the ordinances
granting the exemption. Where the challenged law would
likely be reenacted, courts have refused to find the issue moot.
For example, in Coral Construction Co., we refused to dis-
QWEST CORP. v. CITY OF TUCSON 717
miss a claim as moot because the district court had approved
of the county’s ordinance. 941 F.3d at 928. Thus, “not only
could the County reenact its earlier ordinance, but it could do
so without the spectre of a prior finding of unconstitutionali-
ty.” Id. In City of Mesquite, the Supreme Court refused to dis-
miss a claim as moot because the city had announced an
intention to reenact the same statute if the Court vacated the
district court’s judgment. 455 U.S. at 289.
[5] Here, the Cities enacted the new ordinances to conform
their existing ordinances with Ariz. Rev. Stat. § 9-582(E).
Even if the Cities had not enacted the new ordinances, the old
ordinances would have been preempted by state law to the
extent that they required Qwest to obtain a license or fran-
chise. See City of Auburn, 260 F.3d at 1174 (holding that
licensing and franchise ordinances were preempted by state
law to the extent they required a telecommunications provider
asserting a territorial franchise to obtain a franchise). Because
any attempt to repeal the exemption would result in the ordi-
nances being preempted by the state law exemption, it is
unlikely that the Cities would repeal the ordinances granting
the exemption.
[6] Third, the Cities have never required Qwest to comply
with their franchise and licensing requirements even when the
Cities’ ordinances subjected Qwest to such requirements.2
Thus, the Cities merely amended their ordinances to reflect
their practice of exempting telecommunications companies
with a claim of territorial franchise from the franchise and
licensing requirements. See Soranno v. Clark County, 345
F.3d 1117, 1118-19 (9th Cir. 2003) (holding claim moot
2
Tucson filed a quo warranto action challenging the validity of Qwest’s
territorial franchise in 1999. In that suit, Tucson challenged the question
not before this Court—the validity of Qwest’s territorial franchise. That
action was dismissed on procedural grounds. City of Tucson v. U.S. West
Commc’n, No. CV 99-329-TUC-FRZ (JCC), at *10 (D. Ariz. filed Aug.
30, 2002) (Report and Recommendation; adopted by District Court on
Sept. 24, 2002).
718 QWEST CORP. v. CITY OF TUCSON
where city updated ordinance to reflect its practice of not
enforcing previous ordinance). As Nogales, Globe, and Miami
emphasized in their Joint Answering Brief, “In nearly 90
years of statehood, the three Cities had never applied the sup-
posed offensive provisions to Qwest, and there is no evidence
they ever would do so. The Cities, therefore, had no reason to
deal with this specious issue until this case was filed.”
[7] Finally, Qwest argues that its claims are not moot
because the franchise ordinances’ penalty provisions continue
to apply to Qwest. Qwest relies on Jacobus v. Alaska, 338
F.3d 1095, 1103 (9th Cir. 2003), where we concluded that
“[d]espite superseding events, an issue is not moot if there are
present effects that are legally significant.” We then noted
that, although two of the three challenged provisions had been
repealed, the plaintiffs “will likely experience prosecution and
civil penalties for their past violations of the repealed provi-
sions of the Act.” Id. at 1104. In Jacobus, it was undisputed
that the plaintiffs violated the challenged provisions, which
subjected them to civil and criminal liability. In fact, the state
mailed to the plaintiffs a letter reserving the right to prosecute
past violations. Id. The court therefore held that, “[i]n light of
the ongoing civil and criminal ramifications of Plaintiffs’ past
violations, the claims are not moot.” Id. (emphasis added).
[8] Qwest’s situation is distinguishable from Jacobus. In
Jacobus, the plaintiffs faced likely liability from their past
conduct. Conversely, Qwest faces no potential liability from
its past conduct because the parties agree Qwest is not subject
to the licensing and franchise ordinances. Unlike the plaintiffs
in Jacobus, Qwest is concerned about future liability should
its territorial franchise ever be invalidated. When a party’s
only exposure to liability arises from speculative future
events, the Jacobus concerns are inapplicable.
[9] In sum, here, as in Kremens, the newly enacted ordi-
nances resolve the dispute before the court and extinguish the
once live case or controversy. See 431 U.S. at 128-29. Any
QWEST CORP. v. CITY OF TUCSON 719
threat Qwest might face is hypothetical until its territorial
franchise is declared invalid by a future court. Because a live
case or controversy no longer exists, we dismiss Qwest’s
claims challenging the licensing and franchise ordinances as
moot.
B. District Court Lacked Jurisdiction to Invalidate the
Cities’ Taxes
Qwest argues that the FTA prevents the Cities from charg-
ing rent for the use of the public rights-of-way. The Cities do
not dispute that they cannot charge rent. They argue instead
that their charges constitute taxes, which are exempted from
preemption by § 601 of the FTA. The district court agreed
with the Cities and held that § 601 saved the Cities’ charges
from preemption. We agree with the district court that the Cit-
ies’ charges are taxes, but we conclude the claim should have
been dismissed under the Tax Injunction Act, 28 U.S.C.
§ 1341, for lack of subject matter jurisdiction.3
[10] We apply the Bidart test to determine whether a cer-
tain charge is a fee or a tax. Bidart Bros. v. Cal. Apple
Comm’n, 73 F.3d 925, 931 (9th Cir. 1996). The test instructs
courts to focus on three primary factors: (1) the entity that
imposes the charge; (2) the parties upon whom the charge is
imposed; and (3) whether the charge is expended for general
public purposes, or used for the regulation or benefit of the
parties upon whom the assessment is imposed. Id. When the
first two Bidart factors are not dispositive, courts emphasize
the third factor—the way in which the revenue is ultimately
spent. Id. at 932.
The district court applied the Bidart test and found factors
one and three weigh in favor of the charge being a tax and
3
We recognize also that if the Tax Injunction Act did not apply, the dis-
trict court correctly concluded that § 601 of the FTA saved the taxes from
preemption.
720 QWEST CORP. v. CITY OF TUCSON
factor two weighs in favor of it being a fee. Considering that
previous courts have focused on the third factor when the first
two are conflicting, the district court concluded that the
charges are taxes because the revenues from the charges flow
into the Cities’ general funds.
[11] On appeal, Qwest does not dispute the district court’s
application of the Bidart test. Instead, Qwest argues that the
Bidart test does not apply because when a government acts in
a proprietary rather than a governmental capacity, its fees are
never taxes. As the district court correctly concluded, this
argument is fallacious. The Bidart test incorporates the dis-
tinction between proprietary and governmental power in its
factors. For example, the third factor evaluates whether the
revenues are spent to benefit the general public instead of a
limited class of individuals. This factor is critical in distin-
guishing proprietary from governmental activities because a
government does not ordinarily benefit the general public
when it acts in a proprietary capacity. See Black’s Law Dictio-
nary 1256 (8th ed. 2004) (defining “proprietary function” as
“[a] municipality’s conduct that is performed for the profit or
benefit of the municipality, rather than for the benefit of the
general public.”). Thus, the Bidart test addresses Qwest’s
concerns of proprietary versus governmental powers.
[12] Moreover, case law from other circuits does not sup-
port Qwest’s position. Qwest cautions this Court against
being the first court to declare such “rental fees” taxes. How-
ever, we blaze no new trails in reaching such a conclusion.
Numerous other courts have concluded that charges imposed
upon users of a city’s rights-of-way are taxes for purposes of
the Tax Injunction Act. See, e.g., Robinson Protective Alarm
Co. v. City of Philadelphia, 581 F.2d 371, 376 (3d Cir. 1978)
(ordinance imposing 5% charge on gross revenues of compa-
nies using underground wires is a tax despite the state court
labeling it a rental fee); Keleher v. New England Tel. & Tel.
Co., 947 F.2d 547, 549 (2d Cir. 1991) (ordinance requiring
utility companies using and occupying city streets to pay
QWEST CORP. v. CITY OF TUCSON 721
2.5% of their gross revenues as fees constituted a tax) abro-
gated on other grounds by Jefferson County v. Acker, 527
U.S. 423, 434 (1999); City of Chattanooga v. Bellsouth Tele-
comm., Inc., 1 F.Supp.2d 809, 814 (E.D. Tenn. 1998) (ordi-
nance imposing 5% charge on gross revenue of
telecommunications providers that install cable on rights-of-
way is a tax despite being labeled “rent” in the ordinance). In
each of these cases, the court evaluated factors similar to
those in the Bidart test in determining whether the charge was
a tax or a fee. Qwest provided us with no case law, Ninth Cir-
cuit or otherwise, holding that charges similar to the Cities’
charges constitute fees. Therefore, we hold that where, as
here, an ordinance requires that a telecommunications pro-
vider pay a percentage of its gross revenues to the municipal-
ity, and the revenue from that charge is directed to the
municipality’s general fund, the charge constitutes a tax.
[13] Because the charges are taxes under the Bidart test, we
must next determine whether the Tax Injunction Act deprived
the district court of subject matter jurisdiction. The Tax
Injunction Act provides, “The district courts shall not enjoin,
suspend or restrain the assessment, levy or collection of any
tax under State law where a plain, speedy and efficient rem-
edy may be had in the courts of such State.” 28 U.S.C.
§ 1341. The Supreme Court interpreted the Tax Injunction
Act as a “broad jurisdictional barrier.” Arkansas v. Farm
Credit Servs. of Cent. Ark., 520 U.S. 821, 825 (1997) (quota-
tion marks omitted). As the Court noted, the Act is “first and
foremost a vehicle to limit drastically federal district court
jurisdiction to interfere with so important a local concern as
the collection of taxes.” Id. at 826 (internal quotation marks
omitted). Recently, we concluded that the dispositive question
in determining whether the Tax Injunction Act’s jurisdictional
bar applies is whether the plaintiff’s action, if successful,
would reduce the flow of state tax revenue. May Trucking Co.
v. Or. Dep’t of Transp., 388 F.3d 1261, 1267 (9th Cir. 2004)
(citing Hibbs v. Winn, 542 U.S. 88, 106 (2004)).
722 QWEST CORP. v. CITY OF TUCSON
[14] Here, there is no question that, if Qwest were success-
ful on the merits, the Cities’ tax revenues would be reduced.
Qwest’s purpose in challenging the Cities’ ordinances is to
avoid paying the taxes in the future. This type of challenge
seeking to avoid paying a tax is the archetypical action that
the Tax Injunction Act carves out of federal jurisdiction.
[15] Additionally, there is no evidence suggesting an ade-
quate remedy is not available in Arizona courts. In fact,
Qwest already challenged Tucson’s tax in state court and lost.
U.S. West Commc’n v. City of Tucson, 11 P.3d 1054, 1060-63
(Ariz. Ct. App. 2000). Therefore, we hold that the charges
imposed upon Qwest are taxes, and that the Tax Injunction
Act deprived the district court of jurisdiction to invalidate the
taxes.
CONCLUSION
Qwest is no longer subject to the Cities’ licensing and fran-
chise requirements, so its claims challenging these require-
ments are moot. Because the underlying claims are moot, the
Court need not address Qwest’s § 1983 argument. Addition-
ally, the Cities’ charges are taxes, so the Tax Injunction Act
deprived the district court of subject matter jurisdiction to
invalidate the taxes.
AFFIRMED IN PART; DISMISSED IN PART.