American Telephone & Telegraph Co. v. Village of Arlington Heights , 216 Ill. App. 3d 474 ( 1991 )

JUSTICE JOHNSON

delivered the opinion of the court:

Plaintiffs, American Telephone and Telegraph Company, a New York corporation, and AT&T Communications of Hlinois, Inc., an Illinois corporation (hereinafter collectively referred to as AT&T), brought an action in the circuit court of Cook County against defendants, the Villages of Arlington Heights, Palatine, Barrington, Lake Barrington, and the City of Crystal Lake, to compel defendants to allow AT&T to install a fiber optic telecommunications cable under defendants’ streets. Defendants are all Illinois municipal corporations. Plaintiffs initially sought a preliminary injunction, a declaratory judgment, and an order of mandamus.

The trial court entered a preliminary injunction in favor of plaintiffs, allowing them to construct and maintain the fiber optic cable under defendants’ public streets. An interlocutory appeal was taken by defendants from the preliminary injunction. This court affirmed the grant of the preliminary injunction. Later, the Illinois Supreme Court denied defendants’ petition for leave to appeal and the cause returned to the circuit court for trial on the preliminary injunction. The trial court entered an order nunc pro tunc as of June 5, 1989, giving plaintiffs the right to construct their fiber optic telecommunications cable beneath the streets of the defendant municipalities. Defendants appeal from the final judgment order.

The following issues are before this court for review: (1) whether this court’s opinion on the interlocutory appeal was a determination on the merits; and (2) whether a municipality in Illinois may require a franchise agreement as a precondition for the use of public streets by a public utility.

We affirm.

Background

Plaintiffs were engaged in the construction of an 85-mile-long fiber optic cable. Plaintiffs planned to extend the cable from Glenview, Illinois, to Rockford, Illinois. At the time this case was filed, a majority of the cable had already been installed on the side of a railroad roadbed owned by the Chicago and North Western Transportation Company pursuant to an easement granted to AT&T. However, the cable would undercross public streets in the defendant municipalities at points where the railroad roadbed owned by the Chicago and North Western Transportation Company intersected with defendants’ public streets.

AT&T’s first contact with defendants took place in February of 1987. At that time, a representative of AT&T was informed by the Village of Arlington Heights that AT&T would have to obtain a franchise in order to use the public streets of the village for its cable. Plaintiffs were also informed that the Northwest Municipal Conference would negotiate franchise agreements between AT&T and the various municipalities whose public streets would be used by AT&T.

In March of 1987, representatives of AT&T met with representatives of the Northwest Municipal Conference. The representatives of the Northwest Municipal Conference informed AT&T that a franchise, or a similar agreement, must be obtained from each defendant municipality before a public utility such as AT&T would be permitted to use their public streets. Representatives of the Northwest Municipal Conference initially requested that AT&T enter into a franchise agreement with them which was similar to AT&T’s agreement with the City of Chicago. AT&T’s agreement with the City of Chicago provided for the payment of “franchise fees” consisting of 2% of AT&T’s gross revenues derived from long-distance calls originating in Chicago, or a minimum of $5 million per year. AT&T refused to agree to the proposal. AT&T maintained that it declined to agree to this proposal because the franchise fees requested had no relationship to the burden imposed upon defendants by AT&T’s use of their streets, or to public safety within the defendant municipalities.

When AT&T refused to agree to tender a percentage of its gross revenues, defendants suggested that an agreement between Western Union and several Illinois municipalities, which was drafted by the Northwest Municipal Conference, could serve as the model for an agreement between defendants and AT&T. Under the “Western Union model,” AT&T would have been required to pay defendants $2.50 for each foot of cable installed within their municipalities. AT&T also rejected this proposal.

Finally, AT&T offered to pay defendants $1 for each foot of fiber optic cable installed within defendants’ public way, in addition to an administrative fee of $5,000 per year. AT&T and the representatives of the Northwest Municipal Conference failed to reach a compensation agreement.

The Villages of Arlington Heights, Barrington, and Palatine have ordinances which enunciate the criteria for obtaining permission to tunnel under their public streets. The City of Crystal Lake has similar provisions in its city code. These ordinances all require an applicant to provide certain information and meet certain conditions before a permit may be issued. However, none of these ordinances requires a permit applicant to enter into a “franchise agreement” with the municipality in order to obtain a permit.

In 1987, AT&T submitted permit applications to defendants pursuant to the municipalities’ respective ordinances. In May of 1987, AT&T applied to the City of Crystal Lake for a permit to construct a telecommunications cable under its street crossings. In July of 1987, AT&T submitted similar permit applications to the Villages of Arlington Heights, Barrington, and Palatine. These villages and the City of Crystal Lake refused to issue permits to AT&T, because AT&T declined to enter into franchise agreements with them. A permit was initially granted by the Village of Lake Barrington; however, this permit was subsequently revoked prior to the installation of the fiber optic cable.

On August 11, 1987, AT&T mailed 10-day notices to the Villages of Arlington Heights, Barrington, and Palatine in an effort to invoke rights granted to it in section 4 of the Telephone Company Act (hereinafter the Telephone Act) (Ill. Rev. Stat. 1987, ch. 134, par. 20). The 10-day notices stated that AT&T intended to begin constructing its fiber optic cable under various streets of the defendant municipalities. A similar letter was mailed to the City of Crystal Lake on September 11,1987.

AT&T commenced work in the Villages of Arlington Heights and Palatine without having obtained permits, and without having entered into franchise agreements with defendants. Defendants responded by ordering AT&T to stop working. Subsequently, AT&T filed a complaint against defendants.

Plaintiffs sought a preliminary injunction to prevent defendants from interfering with the installation of the fiber optic cable under their public streets. During the injunction hearings, defendants maintained that “[Requiring payment of a fee as a condition for use of *** property by a commercial enterprise is a legitimate means of raising revenue.” Defendants also took the position that AT&T had “no right whatsoever” to undercross their streets, and that they have an “absolute right to exclude” AT&T from any use of public streets except on such terms as they may demand. Plaintiffs also sought a declaratory judgment stating that defendants were not entitled to require them to obtain permits and enter into franchise agreements. The original complaint also contained a prayer for an order of mandamus requiring defendants to allow AT&T to construct its cable system under defendants’ street crossings.

On November 2, 1987, the trial court entered an interlocutory order granting a preliminary injunction in favor of plaintiffs which allowed them to “construct, maintain, lay, alter, bore or locate and use its fiber optic cable along, upon, under, and across any highway, street, road, or alley under the control or claimed control of the defendants.” Subsequently, defendants appealed from the interlocutory order. On appeal, this court affirmed in part and reversed in part the decision of the trial court. American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, appeal denied (1988), 123 Ill. 2d 555.

On May 2, 1989, plaintiffs filed a motion to convert the preliminary injunction to a permanent injunction. The court issued an injunction which permanently enjoined defendants from “interfering with or disrupting the ongoing operation of plaintiffs’ fiber optic telecommunications system.” The court ruled that plaintiffs had the right to com struct their fiber optic telecommunications cable beneath the streets of the defendant municipalities pursuant to the Telegraph Act (Ill. Rev. Stat. 1987, ch. 134, par. 4), and the Public Utilities Act (Ill. Rev. Stat. 1987, ch. 111½, par. 13 — 202). The court also ruled that plaintiffs had a right to operate the cable without interference or disruption by defendants. The order was entered nunc pro tunc as of June 5,1989.

Defendants filed their notice of appeal on June 28, 1989. AT&T moved to dismiss the appeal. Subsequently, defendants moved for a direct appeal to the supreme court pursuant to Rule 302(b) (134 Ill. 2d R. 302(b)). The supreme court denied defendants’ motion on August 16, 1989. This court denied AT&T’s motion to dismiss on September 28, 1989. This appeal is taken from the trial court’s order of June 5, 1989.

Opinion

I

First, defendants contend that this court’s decision on the interlocutory appeal in American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, should be reversed because this court’s opinion was not a full determination on the merits, and, insofar as this court went beyond determining whether there was an abuse of discretion by the trial court, its holdings are mere dicta.

Defendants have correctly noted that “the purpose of a preliminary injunction is to preserve the status quo and not to determine controverted rights or decide the merits of a case.” (U-Haul Co. v. Hindahl (1980), 90 Ill. App. 3d 572, 575.) However, a successful movant for a preliminary injunction must show “a reasonable likelihood of success on the merits.” Preferred Meal Systems, Inc. v. Guse (1990), 199 Ill. App. 3d 710, 718.

Defendants are correct that this court’s opinion on the interlocutory appeal was not a full determination on the merits. (See American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381.) However, insofar as this court went beyond determining whether the trial court abused its discretion, its findings are valid because they are relevant with respect to the question of whether plaintiffs are ultimately likely to prevail on the merits. (See Preferred Meal Systems, Inc., 199 Ill. App. 3d at 718.) Therefore, we find that this court’s decision was proper, and we will not reverse this court’s decision on the interlocutory appeal.

II

Next, defendants maintain that an Illinois municipality may require a franchise agreement as a precondition for the use of public streets by a public utility. Specifically, defendants assert that they may require a franchise agreement because the Telegraph Act provides that a municipality must consent to a telephone utility’s use of the public streets. (Ill. Rev. Stat. 1987, ch. 134, par. 4.) Defendants also argue that a franchise agreement is necessary for a public utility to utilize the public streets of a municipality. Plaintiffs contend that a municipality does not have an absolute right to bar a telephone utility from the use of its public streets.

Section 4 of the Telegraph Act contains the following provisions:

“No such company shall have the right to erect any poles, posts, piers, abutments, wires or other fixtures of their lines along or upon any public ground *** within any incorporated city, town or village, without the consent of the corporate authorities of such city, town or village. The consent herein required must be in writing, and shall be recorded in the recorder’s office of the county. ***

The right of any such company to erect such structures, wires or fixtures within the right of way of any public highway is subject to the provisions of Section 9 — 113 of the ‘Illinois Highway Code’ as the same may from time to time be amended.” Ill. Rev. Stat. 1987, ch. 134, par. 4.

Illinois courts have interpreted section 4 of the Telephone Act. In American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, this court made the following finding:

“[SJection 4 of the Telephone Act clearly shows that defendants’ consent is not mandatory before access to the streets [for the purpose of installing telephone wires] can be obtained. [Citation.] Section 4 of the Telephone Act expressly authorizes the telephone company to install its facilities when it is necessary.” (American Telephone & Telegraph Co., 174 Ill. App. 3d at 385.)

Moreover, this court specifically held that “neither plaintiffs nor defendants have an absolute right over the use of public streets.” (American Telephone & Telegraph Co., 174 Ill. App. 3d at 387.) We also noted that power has been granted to the General Assembly to permit the use of public streets, but that such power must be strictly construed. In addition, we have found that the powers and rights granted to a municipality over the streets of a city are regulatory in character. American Telephone & Telegraph Co., 174 Ill. App. 3d at 387.

In addition, our supreme court has ruled that the municipal power to regulate the use of the streets and the concomitant power “to charge a license fee in connection with the exercise of the regulatory powers” (City of Chicago Heights v. Western Union Telegraph Co. (1950), 406 Ill. 428, 433) must “bear some reasonable relation to the additional burdens imposed upon the municipality by the business or occupation.” City of Chicago Heights, 406 Ill. at 433-34.

One year later, the supreme court ruled that a fee required of a telecommunications utility for the use of a municipality’s streets must bear some relation to the amount of street space used for the wires. (City of Chicago Heights v. Public Service Co. (1951), 408 Ill. 310, 318.) The court held that compensation which bears no relation to the amount of space occupied by telecommunications wires is “wholly lacking in uniformity, and is purely arbitrary and discriminatory in its nature.” City of Chicago Heights, 408 Ill. at 318.

Later that same year, the supreme court ruled that a municipality’s regulatory and police powers over its public streets are subject to a reasonableness limitation. Specifically, the court held that “license fees charged must bear some reasonable relation to the additional burdens and necessary expense involved in the regulation and supervision of the business affected, otherwise the ordinance imposing the license fees will be *** deemed null and void.” City of Chicago Heights Public Service Co. (1951), 408 Ill. 604, 608-09.

The supreme court also mandated that “a municipality cannot, under the guise of an exercise of a police power, impose a license fee for revenue purposes.” City of Chicago Heights v. Western Union Telegraph Co. (1950), 406 Ill. 428, 434.

A

We find that a municipality does not have an absolute right to require a franchise agreement as a precondition for the use of public streets by a telecommunications utility. First, defendants maintain that they have an absolute right to require a franchise agreement as a precondition for the use of their public streets by defendants, because the Telegraph Act requires municipal consent. (Ill. Rev. Stat. 1987, ch. 134, par. 4.) Defendants are correct that the Telegraph Act requires written consent from a municipality before any such company may “erect any poles, posts, piers, abutments, wires or other fixtures of their lines along or upon any public ground *** within any incorporated city, town or village.” (Ill. Rev. Stat. 1987, ch. 134, par. 4.) However, the issue of whether a municipality has absolute, arbitrary power over the use of municipal streets by a telephone utility was decided against defendants by this court in American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381. In American Telephone & Telegraph Co., we found that although power has been granted to the General Assembly to permit the use of municipal streets, this power is to be strictly construed. (American Telephone & Telegraph Co., 174 Ill. App. 3d at 387.) We specifically ruled that “neither plaintiffs nor defendants have an absolute right over the use of public streets.” (American Telephone & Telegraph Co., 174 Ill. App. 3d at 387.) In addition, the Illinois Supreme Court has twice refused to consider defendants’ pleas that this court and the trial court erred in rejecting defendants’ claims to unlimited power over the use of public streets by telecommunications companies. Defendants have failed to distinguish the aforementioned cases upon which we rely.

Furthermore, we find defendants’ reliance upon City of Springfield v. Inter-State Independent Telephone & Telegraph Co. (1917), 279 Ill. 324, People ex rel. Shallberg v. Central Union Telephone Co. (1908), 232 Ill. 260, Illinois Bell Telephone Co. v. Lewis (1983), 117 Ill. App. 3d 72, Lewis v. Illinois Bell Telephone Co. (1981), 98 Ill. App. 3d 1047, and Reith v. General Telephone Co. (1974), 22 Ill. App. 3d 337, unpersuasive and inappropriate. Defendants rely upon People ex rel. Shallberg in support of their position that the Telephone Act does not grant authority to a telephone utility to place its telecommunication wires in a municipal street without the consent of that municipality. (People ex rel. Shallberg, 232 Ill. at 275.) In addition, defendants cite the following finding made by the court in People ex rel. Shallberg in support of their position:

“The [Act] *** expressly provides that nothing contained in it shall interfere with the control vested in cities, incorporated towns and villages in relation to the regulation of the poles, ■wires, cables and other appliances. That control is not limited to prescribing the location and size of the poles, and such matters, but extends to the whole subject.” People ex rel. Shallberg, 232 Ill. at 276.

As we stated above, the Telegraph Act requires consent from a municipality before a telephone utility may “erect any *** wires or other fixtures of their lines along or upon any public ground *** within any incorporated city, town or village.” (Ill. Rev. Stat. 1987, ch. 134, par. 4.) However, under current Illinois common law, a municipality’s control over the use of its streets by a telecommunication utility does not “extendf ] to the whole subject.” (See People ex rel. Shallberg, 232 Ill. at 276.) A municipality’s control over the use of public streets is not absolute. (American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, 387.) Moreover, this court has ruled that a municipality’s “consent is for the purpose of notifying the municipality in advance of intended construction so that it can exercise its regulatory power of time, manner, and location of the construction.” American Telephone & Telegraph Co., 174 Ill. App. 3d at 386.

Defendants also rely upon City of Springfield v. Inter-State Independent Telephone & Telegraph Co. (1917), 279 Ill. 324. In City of Springfield, the court held that a municipality's power to permit the use of its streets by “public service corporations” is “discretionary” (City of Springfield, 279 Ill. at 327), and that a “city council may, in its discretion, grant a license for the occupation of the streets without qualification, or may impose such conditions upon the giving of its consent *** as it deems advisable.” City of Springfield, 279 Ill. at 327.

We noted above that current case law has mandated that a municipality’s right to control the use of its public streets must be “strictly construed.” (Emphasis added.) (American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, 387.) This court has specifically found that a municipality does not have an absolute right over the use of its public streets. See American Telephone & Telegraph Co., 174 Ill. App. 3d at 387.

Defendants’ reliance upon Reith v. General Telephone Co. (1974), 22 Ill. App. 3d 337, is also inappropriate. We have already found that Reith is distinguishable from the instant case. The issue in Reith was whether a company that obtains a license from a municipality to use its streets may evade liability when injuries result from such use. This issue has little, if any, relevance to the case at bar.

Finally, we find that defendants’ reliance upon Lewis v. Illinois Bell Telephone Co. (1981), 98 Ill. App. 3d 1047, and Illinois Bell Telephone Co. v. Lewis (1983), 117 Ill. App. 3d 72, is inappropriate. In Lewis v. Illinois Bell Telephone Co. (1981), 98 Ill. App. 3d 1047, the property in question was private property. (Lewis, 98 Ill. App. 3d at 1048.) Lewis is not relevant to the instant case because the property in question in the instant case is public property committed to public use by the Telegragh Act. (Ill. Rev. Stat. 1987, ch. 134, par. 2.) Moreover, the issue in both of these cases is the extent of a public utility’s eminent domain power. Accordingly, we find that defendants do not have an absolute right to bar plaintiffs from the use of public streets.

B

Defendants also maintain that they have an absolute right to require that plaintiffs enter into a franchise agreement with them as a prerequisite for plaintiffs’ use of their public streets. Defendants argue that a franchise agreement is necessary before a public utility may utilize the public streets of a municipality.

We find that a franchise agreement is not a necessary prerequisite for plaintiffs’ use of defendants’ streets. Defendants do not have an absolute right to require that plaintiffs enter into a franchise agreement as a precondition to the use of their public streets. First, the Telegraph Act has no provision which states that a franchise agreement is a necessary prerequisite for a telephone utility’s use of a municipality’s public streets, or that a telephone utility must pay a municipality franchise fees for use of that municipality’s public streets. The Telegraph Act merely requires the consent of municipal authorities before a telephone utility may place telephone wires upon public property. Ill. Rev. Stat. 1989, ch. 134, par. 4; see also American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, 385.

In addition, the common law clearly states that municipalities may not charge permit or license fees which bear no reasonable relationship to the burdens imposed by the particular proposed use of the public streets. (See City of Chicago Heights v. Public Service Co. (1951), 408 Ill. 604, 608-09; City of Chicago Heights v. Public Service Co. (1951), 408 Ill. 310, 318; City of Chicago Heights v. Western Union Telegraph Co. (1950), 406 Ill. 428, 433-34.) In Illinois, “[t]he terms ‘franchise’ and ‘license’ are sometimes used interchangeably.” (General Electric Cablevision Corp. v. City of Peoria (1972), 8 Ill. App. 3d 948, 951.) The record shows that defendants have attempted to charge the plaintiffs license or franchise fees which bear no reasonable relationship to the burdens which would be imposed by plaintiffs upon defendants. Plaintiffs’ telecommunications cable undercrosses defendants’ streets where property owned by the Chicago and North Western Transportation Company intersects with defendants’ public streets. Defendants attempted to charge plaintiffs millions of dollars in franchise fees. These fees bore no reasonable relationship to the minimal burdens which plaintiffs have imposed upon defendants by running their cable underneath short segments of defendants’ streets.

Moreover, the record indicates that defendants sought to charge plaintiffs exorbitant franchise fees as a “means of raising revenue.” This is clearly impermissible. In Illinois, “a municipality cannot, under the guise of an exercise of a police power, impose a license fee for revenue purposes.” City of Chicago Heights, 406 Ill. at 434.

In addition, we find that defendants’ reliance upon City of Geneseo v. Illinois Northern Utilities Co. (1941), 378 Ill. 506, cert. denied (1942), 316 U.S. 670, 86 L. Ed. 1746, 62 S. Ct. 1046, Village of West City v. Illinois Commercial Telephone Co. (1939), 372 Ill. 493, City of Edwardsville v. Central Union Telephone Co. (1923), 309 Ill. 482, People ex rel. City of Chicago v. Chicago Telephone Co. (1906), 220 Ill. 238, Illinois Broadcasting Co. v. City of Decatur (1968), 96 Ill. App. 2d 454, Coles-Moultrie Electric Cooperative v. Illinois Commerce Comm’n (1985), 131 Ill. App. 3d 946, and General Electric Cablevision Corp. v. City of Peoria (1972), 8 Ill. App. 3d 948, inappropriate. Defendants argue that City of Edwardsville and Village of West City establish that a municipality has the right to require that a telecommunications utility enter into a franchise agreement with it as a prerequisite to using the public streets to house a telecommunications cable. We find that Village of West City mandates that a municipality may enter into a franchise agreement with a public utility. (Village of West City, 372 Ill. at 495-96.) However, Village of West City does not state that a municipality has a right to force a telephone utility to enter into a franchise agreement or that a franchise agreement is a necessary precondition to use of the streets by a telecommunications utility. Similarly, defendants have misinterpreted City of Edwardsville. The issue in City of Edwardsville was whether a statute which imposed a penalty for posts and poles exceeding a certain height was applicable to the Central Union Telephone Company. City of Edwardsville concerns statutory construction (City of Edwardsville, 309 Ill. at 483, 486-88), and it does not address the issue of whether a municipality may compel a telephone utility to enter into a franchise agreement or whether a franchise agreement is a necessary prerequisite for a telecommunications utility’s use of public streets. Therefore, City of Edwardsville and Village of West City are inapplicable to the case at bar.

Similarly, defendants assert that People ex rel. City of Chicago v. Chicago Telephone Co. (1906), 220 Ill. 238, mandates that a telephone company cannot place its wires upon the streets of a municipality without a franchise. Defendants’ interpretation of this case is also erroneous. Chicago Telephone Co. concerned the nature of rates which telephone customers could be charged. Chicago Telephone Co., 220 Ill. at 239, 240-41.

In addition, defendants maintain that Illinois Broadcasting Co. v. City of Decatur (1968), 96 Ill. App. 2d 454, and General Electric Cablevision Corp. v. City of Peoria (1972), 8 Ill. App. 3d 948, mandate that franchise agreements between public utilities and municipalities are authorized by various statutory grants which permit municipalities to regulate the use of their streets. We find that Illinois Broadcasting Co. and General Electric Cablevision Co. are not applicable to the case at bar, because these cases specifically involve the granting of franchises by municipalities to private cable television corporations. Therefore, these cases are not relevant with respect to the legality and scope of franchise agreements between a municipality and a public telecommunications utility.

Finally, defendants contend that City of Geneseo v. Illinois Northern Utilities Co. (1941), 378 Ill. 506, cert. denied (1942), 316 U.S. 670, 86 L. Ed. 1746, 62 S. Ct. 1046, mandates that municipalities have unlimited franchise powers over their streets, and that this court misread City of Geneseo and interpreted it as giving control over municipal streets to the Illinois Commerce Commission. We are not persuaded by defendants’ arguments. In City of Geneseo, the Illinois Supreme Court held that the powers granted to the Illinois Commerce Commission by the Public Utilities Act (Ill. Rev. Stat. 1987, ch. 1112/3, par. 13 — 202) do not deprive municipalities of regulatory authority over the use of streets by public utilities. (City of Geneseo, 378 Ill. at 530.) This court so construed the case and held that “Geneseo is not dispositive of [the case at bar],” in which an entirely different issue is involved. (American Telephone & Telegraph Co. v. Village of Arlington Heights (1988), 174 Ill. App. 3d 381, 385.) The issue in the instant case is whether municipal regulatory authority over placement of telephone company facilities in public streets is absolute or is limited by law.

For these reasons, we find that defendants do not have an absolute right to require a franchise agreement as a prerequisite for the use of their public streets by plaintiffs, and that a franchise agreement is not a necessary precondition for plaintiffs to utilize the public streets of the defendant municipalities.

For the aforementioned reasons, we affirm the decision of the circuit court of Cook County.

Affirmed.

LINN, J., concurs.