Opinion ID: 2066735
Heading Depth: 1
Heading Rank: 5

Heading: Does Federal Law Preempt State Laws Prohibiting Municipal Telephone Utilities?

Text: We next address the issue found dispositive by the district court-federal preemption. In the district court, the City relied on two provisions of the Telecommunications Act of 1996 to support its position that the State could not prohibit the City's utility from offering telephone service. One provision, and the one upon which the district court relied, is found at 47 U.S.C. § 253(a). The second provision is found at 47 U.S.C.§ 541(b)(3)(B). In determining whether a federal law preempts state action, our role is to ascertain congressional intent. See City of Des Moines v. Master Builders of Iowa, 498 N.W.2d 702, 705 (Iowa 1993) (citing Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 137-38, 111 S.Ct. 478, 482, 112 L.Ed.2d 474, 483 (1990)). If the federal statute pertains to an activity traditionally regulated by the states, the statute will be construed to protect state authority unless the clear and manifest purpose of Congress is to preempt. CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 663-64, 113 S.Ct. 1732, 1737, 123 L.Ed.2d 387, 396 (1993); accord Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407, 422 (1992). Although Congress may legislate in areas traditionally regulated by the States, ... `it must make its intention to do so unmistakably clear in the language of the statute.' Gregory v. Ashcroft, 501 U.S. 452, 460, 111 S.Ct. 2395, 2400-01, 115 L.Ed.2d 410, 423-24 (1991) (quoting Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 242, 105 S.Ct. 3142, 3147, 87 L.Ed.2d 171, 179 (1985)). In Gregory, the Supreme Court adopted the plain-statement rule: the courts will not interpret a federal statute in such a way as to intrude upon an area traditionally regulated by the states absent a clear expression of congressional intent to do so. See id., We are also mindful of federal principles of statutory construction requiring that we give considerable weight ... to an executive department's construction of a statutory scheme it is entrusted to administer. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 2782, 81 L.Ed.2d 694, 704 (1984). We turn now to the preemption provision that was the basis of the district court's summary judgment ruling47 U.S.C. § 253(a).
(a) In general 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. .... (d) Preemption If ... the [Federal Communications] 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. Telecommunications Act of 1996 § 101(a), 47 U.S.C. § 253 (emphasis added). The City thinks the statute's any entity language embraces its utility, and thus, to the extent any Iowa law prohibits a municipal utility from offering telecommunications services, that law is preempted. Although the Telecommunications Act of 1996 is a relatively new statute, we are guided by a recent decision of the Federal Communications Commission (FCC), the executive agency to whom Congress delegated the responsibility of administering the preemption provisions of the act. See In re Pub. Utility Comm'n of Texas, 13 F.C.C.R. 3460 (1997), affd sub nom., City of Abilene v. Federal Communications Comm'n, 164 F.3d 49, 53 (D.C.Cir.1999) (hereinafter Texas decision). [1] In the FCC's Texas decision, the FCC considered a challenge to a Texas statute that included a provision prohibiting municipalities from providing local telephone service. The parties arguing for preemption claimed the phrase any entity was unambiguous and did not exclude municipalities. Id. at 3542, ¶ 175. These parties also noted that Texas is a home rule state and although `home rule' cities are subject to state law, they derive their authority directly from the Texas Constitution and thus have status as an entity separate and apart from the State of Texas. Id. at 3542-43, ¶ 176. The FCC rejected these arguments for several reasons: (1) cities are not entities separate and distinct from the state for the purpose of § 253(a) preemption; (2) to find preemption would insert the FCC into the relationship between states and their political subdivisions in a way not intended by Congress; (3) even home rule cities are subject to the superior authority of the state legislature; and (4) because the authority permitted by a state to its political subdivisions has traditionally been within the purview of the states, the FCC should not find congressional intent to interfere absent a clear indication of such intent. Id. at 3544-46, ¶¶ 179-181. Based on these conclusions, the FCC held that a municipality was not an entity within the meaning of § 253(a) and consequently, the Texas law prohibiting municipalities from operating telephone systems was not preempted. Id. at 3467, ¶ 16. The United States Court of Appeals for the District of Columbia agreed, concluding that Congress's intent to include municipalities in the category `any entity' was not plain as required under Gregory. City of Abilene, 164 F.3d at 54. We agree with this interpretation of § 253(a) and hold that this statute does not prevent the State of Iowa from prohibiting the offering of local telephone service by its political subdivisions. In view of this interpretation of § 253(a), we conclude the district court erred in granting summary judgment on this basis. Nevertheless, we may affirm on any basis appearing in the record and urged by the prevailing party. Voss, 553 N.W.2d at 879 n. 1. Therefore, we now consider the City's alternative argument in support of its motion for summary judgmentthat 47 U.S.C. § 541(b)(3)(B) preempts any law that would prohibit the City's utility from offering telephone service. B. Applicability of 47 U.S.C. § 541(b)(3)(B). This statute, also part of the Telecommunications Act of 1996, provides that [a] franchising authority may not impose any requirement under this subchapter that has the purpose or effect of prohibiting... the provision of a telecommunications service by a cable operator.... 47 U.S.C. § 541(b)(3)(B). The City claims that the State is a franchising authority under the definition of that term found at 47 U.S.C. § 522(10). It then argues that because the City's utility is providing cable television services, [2] § 541(b)(3)(B) prevents the State from prohibiting the City's utility from also offering telephone service. ITA responds that this argument is no different than the § 253(a) preemption argument. It contends that there is a statutory interpretation issue on whether the phrase cable operator includes a municipality. ITA claims that a municipality is not included for the same reasons a municipality is not an entity under § 253(a), including the argument that Congress did not intend to interfere in the relationship between a state and its political subdivisions. See Gregory, 501 U.S. at 460-61, 111 S.Ct. at 2401, 115 L.Ed.2d at 423-24 (requiring plain statement of Congress's intent to intrude upon area traditionally regulated by the states). If § 541(b)(3)(B) does reach municipal utilities, the statute, asserts ITA, violates the Tenth Amendment to the United States Constitution. In addressing the applicability and effect of § 541(b)(3)(B), we will first ascertain the proper interpretation of this statute. We will then discuss any Tenth Amendment implications. 1. Statutory interpretation. Initially, we note that § 541(b)(3)(B) differs in a fundamental way from § 253(a); the relevant terms in § 541(b)(3)(B) are defined by Congress, whereas there is no statutory definition of the term any entity as used in § 253(a). Thus, we start with the statutory definitions. We first consider whether the State of Iowa is a franchising authority within the meaning of the statute. The term franchising authority is defined as any governmental entity empowered by Federal, State or local law to grant a franchise. 47 U.S.C. § 522(10). A franchise includes any authorization..., whether such authorization is designated as a franchise, permit, license, resolution, contract, certificate, agreement, or otherwise, which authorizes the construction or operation of a cable system. Id. § 522(9). ITA does not dispute that the State of Iowa qualifies as a franchising authority. Indeed, the State, through its statutory regulation of the services that may be offered by municipal utilities, is the entity that authorizes the operation of cable systems by such utilities. See Iowa Code§§ 362.2(6), 384.81(1). Because the State of Iowa is a franchising authority, § 541(b)(3)(B) prevents the State from impos[ing] any requirement ... that has the purpose or effect of prohibiting ... the provision of a telecommunications service by a cable operator .... 47 U.S.C. § 541(b)(3)(B). We next consider whether the City's utility is attempting to offer a telecommunications service. The term, telecommunications service, means the offering of telecommunications for a fee directly to the public.... Id. § 153(46). The meaning of telecommunications is quite expansive: the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received. Id. § 153(43). ITA does not dispute that telecommunications service includes telephonic communications. Thus, we are left with the final question: does the City's utility qualify as a cable operator within the meaning of § 541(b)(3)(B)? The phrase cable operator is defined as any person ... who provides cable service over a cable system and ... owns a significant interest in such cable system. Id. § 522(5). The term cable service means the one-way transmission to subscribers of (i) video programming, or (ii) other programming service and subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service. Id. § 522(6). A cable system is defined as a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community .... Id. § 522(7). ITA does not dispute that the City's utility provides video programming to subscribers over its cable system. See generally Iowa Code § 362.2(6) (defining a city utility, in part, as a cable communication or television system). That leaves only the question of whether the City's utility is a person who provides video programming to subscribers over a cable system. See 47 U.S.C. § 522(5) (defining cable operator as a person ...). The word person is defined in the Telecommunications Act of 1996 and that definition includes a governmental entity: the term `person' means an individual, partnership, association, joint stock company, trust, corporation, or governmental entity. Id. § 522(15) (emphasis added). Thus, the City's utility, as a governmental entity, is clearly a cable operator protected by the limitations placed on franchising authorities by § 541(b)(3)(B). Because Congress's intent to include governmental subdivisions within the reach of § 541(b)(3)(B) is unmistakable, we are not at liberty to go beyond the statutory definitions and, in effect, modify § 541(b)(3)(B) on the basis of the federal government's traditional deference to state sovereignty. See Pennsylvania Dep't of Corrections v. Yeskey, 524 U.S. 206, ___, 118 S.Ct. 1952, 1954, 141 L.Ed.2d 215, 219 (1998) (holding that Gregory's plain-statement rule does not apply where the statute's language unmistakably includes governmental entities). We agree, therefore, with the City that once the State permits city utilities to operate cable systems, as Iowa does, then federal law prevents the State from prohibiting city utilities who operate cable systems from also offering other telecommunications services, such as telephone service. See Schuver v. E.I. Du Pont de Nemours & Co., 546 N.W.2d 610, 612-13 (Iowa 1996) (holding that where a state statute conflicts with a federal statute, the state statute is preempted and the federal statute prevails by virtue of the Supremacy Clause); Olson v. Prosoco, Inc., 522 N.W.2d 284, 293 (Iowa 1994) (same). 2. Tenth Amendment. ITA's fall back argument is that applying § 541(b)(3)(B) to a governmental entity violates the Tenth Amendment to the United States Constitution. The Tenth Amendment states: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. U.S. Const. amend. X. As the United States Supreme Court has explained, If a power is delegated to Congress in the Constitution, the Tenth Amendment expressly disclaims any reservation of that power to the States. New York v. United States, 505 U.S. 144, 156, 112 S.Ct. 2408, 2417, 120 L.Ed.2d 120, 137 (1992). In the present case, the City relies on Congress's power under the Commerce Clause, arguing that Congress controls interstate commerce, including commerce in communications. See U.S. Const. art. I, § 8, cl. 3 (giving Congress power to regulate commerce among the states). ITA contends that Congress has invaded an area traditionally reserved to the states. For purposes of our discussion of this issue, it is important to note that ITA does not rest its Tenth Amendment argument on the ground that the city's utility is engaged in intrastate commercial activity. See generally AT & T Corp. v. Iowa Utils. Bd., ___ U.S. ___, ___, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) (noting the 1996 act clearly `appl[ies]' to intrastate service). Rather it relies on the municipal utility's status as a governmental entity to claim exemption from the requirements of the Telecommunications Act. The United States Supreme Court has rejected an interpretation of the Tenth Amendment that would categorically prohibit federal regulation of traditional state activities. See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 546-47, 105 S.Ct. 1005, 1015, 83 L.Ed.2d 1016, 1031 (1985). Although the Court acknowledged in Garcia that the states retain `a significant measure of sovereign authority' ..., [t]hey do so ... only to the extent that the Constitution has not divested them of their original powers and transferred those powers to the Federal Government. Id. at 549, 105 S.Ct. at 1016-17, 83 L.Ed.2d at 1033 (citation omitted). In other words, the Constitution does not carve out express elements of state sovereignty that Congress may not employ its delegated powers to displace. Id. at 550, 105 S.Ct. at 1017, 83 L.Ed.2d at 1033. The Supreme Court concluded in Garcia that [s]tate sovereign interests ... are more properly protected by procedural safeguards inherent in the structure of the federal system than by judicially created limitations on federal power. Id. at 552, 105 S.Ct. at 1018, 83 L.Ed.2d at 1034. With respect to the specific statute at issue in Garcia the overtime and minimum-wage requirements of federal law, the Court concluded that application of these laws to a public mass-transit authority did not violate the Tenth Amendment. Id. at 555-56, 105 S.Ct. at 1020, 83 L.Ed.2d at 1037. The Court noted that these requirements were not destructive of state sovereignty or violative of any constitutional provision: the transit authority faces nothing more than the same minimum-wage and overtime obligations that hundreds of thousands of other employers, public as well as private, have to meet. Id. at 554, 105 S.Ct. at 1019, 83 L.Ed.2d at 1036. In a later case, the Supreme Court summarized the appropriate analysis under the Tenth Amendment as a determination whether an incident of state sovereignty is protected by a limitation on an Article I power. New York, 505 U.S. at 157, 112 S.Ct. at 2418, 120 L.Ed.2d at 138. As we previously noted, the Article I power upon which Congress relied in enacting the Telecommunications Act of 1996 is the Commerce Clause. See U.S. Const. art. I, § 8, cl. 3. We must determine, then, whether the State's power to regulate its political subdivisions is protected by a limitation on Congress's commerce clause power. As we observed earlier, ITA does not claim that the challenged federal statute is not within Congress's commerce clause power. Nor does ITA point to a specific constitutional provision, other than the Tenth Amendment, that it claims is violated by the application of § 541(b)(3)(B) to a municipal utility. Furthermore, ITA has not convinced us that the application of this statute is destructive of state sovereignty. See Garcia, 469 U.S. at 554, 105 S.Ct. at 1019, 83 L.Ed.2d at 1036. As the United States Supreme Court similarly observed in Garcia, the federal law applies equally to private, as well as public, entities operating cable systems. See id. Therefore, the application of § 541(b)(3)(B) to the City's utility does not violate the Tenth Amendment. See United States v. One Parcel of Property, 786 F.Supp. 1497, 1505 (N.D.Iowa 1991) (finding no Tenth Amendment violation where claimants had not demonstrated that challenged federal law was not properly within Congress's commerce clause power).