NC Business Court Judge Rejects the First Attempt to Litigate Under N.C. Gen Stat. § 62-350

Wednesday, October 10, 2012, by Katherine Street

NC Business Court Judge Rejects the First Attempt to Litigate Under N.C. Gen Stat. § 62-350

Communications companies, such as those providing telephone, cable television, and internet services, have used electric utility infrastructure for decades to access their customers. When the communications services are provided via transmission through cables, those cables may be attached to utility poles or occupy space in underground conduits. Structural integrity, limited space, and safety are some of the considerations that limit the type and quantity of non-electric utility use of utility poles and conduit infrastructure. Electric utility infrastructure may be privately or publicly owned, and those owners typically make their own arrangements with entities that wish to attach equipment to utility poles or occupy space in utility conduit.

In North Carolina, municipalities that own electric utility infrastructure may or may not have formal agreements in place governing rates, terms and conditions for third-party attaching entities, such as communications providers. Where formal agreements do exist, they may have been regularly updated, or they may have been in place in excess of 20 years with no revision, despite the increase in the number of parties wishing to utilize electric infrastructure and the amount of equipment that each party wishes to attach to utility poles or place in utility conduit.

Allowing third-party use of electric utility infrastructure can add significant maintenance, inspection and equipment costs. Increasing costs associated with electric utility operation has motivated some North Carolina municipalities that own electric utilities to evaluate the condition of their equipment and the state of their arrangements with third-party attaching entities in an effort to update agreements and rates to attain compensation that is better aligned with the actual costs of allowing third-party use of utility equipment.

While even informal agreements have traditionally charged fees and required compliance with operational, structural, and safety requirements, the rates charged for third -party utility infrastructure use vary widely in the industry, and differing terms, requirements, and rate calculation methods can make it difficult for utility equipment owners and third–party attaching entities to reach agreement. In 2009, the North Carolina legislature attempted to address the issue between the owners of the utility equipment and third-party attaching entities by enacting N.C. Gen Stat. § 62-350 (“Statue”).

Municipal Pole Attachment Regulation N.C. Gen Stat. § 62-350

The Statute requires municipalities to provide communications providers with access to municipally owned utility distribution equipment, including poles and conduits, at “just, reasonable, and nondiscriminatory rates, terms, and conditions adopted pursuant to negotiated or adjudicated agreements.” Municipalities are allowed to withhold access only for a handful of reasons, such as safety and reliability, and only then if there is no reasonable way to reconfigure the facilities to accommodate the third-party attaching entity’s equipment. The municipality may recover the “reasonable and actual cost” of rearrangement from the communications company, but the statute does not seem to leave the municipality much discretion to withhold access for public interest concerns other than safety.

Jurisdiction conveyed to Business Court

The Statute requires the municipality to commence negotiations with the communications provider upon the provider’s request to utilize the municipalities’ facilities. Should negotiations fail to result in agreement within 90 days of a negotiation request or deadlock occur, either party is authorized to commence action in the “Business Court, as the court of exclusive jurisdiction.” Along with jurisdiction, the Statute also sought to impose a strict procedural time limit upon the Business Court, requiring that the court “establish a procedural schedule which, unless otherwise agreed by the parties, is intended to resolve the action within a time period not to exceed 180 days of the commencement of the action.” Further, the statute directs the court to “derive just and reasonable rates.” Less than a year after the Statute was enacted, Time Warner Entertainment Advance/Newhouse Partnership (“TWEAN”) brought action against the Town of Landis, North Carolina, “to resolve a dispute with Landis concerning the rates, terms, and conditions of TWEAN’s attachment . . . to utility poles owned by Landis.

Town of Landis’ Proposed New Agreement Gives Rise to TWEAN’s Claims

In 1984, the Town of Landis (“Landis”), North Carolina, licensed an entity that provided cable television services to attach equipment to Landis’ utility poles at rates and terms provided for in a written agreement. The agreement set the rate for use of the utility poles at $3.00 per utility pole attached to, and $1.00 per metered power supply attachment. After the first year, either party could terminate the agreement by providing notice at least six months prior to desired termination. Ultimately, TWEAN became the successor in interest to the 1984 pole attachment agreement, and the equipment attached to Landis’ utility poles expanded to offer broadband services in addition to cable television. Despite these changes, and the significant passage of time, Landis made no changes to the agreement or increases in rates for more than two decades. That changed, however, when Landis arranged an audit of its utility pole infrastructure in 2008 and initiated negotiations with TWEAN for a new pole attachment agreement in 2009. Following the initiation of negotiation, Landis and TWEAN exchanged correspondence while continuing to operate under the provisions of the 1984 Agreement.

Business Court Dismisses the Case for lack of Subject Matter Jurisdiction

When their exchanges failed to lead to agreement, TWEAN’s brought its claims to the North Carolina Business Court alleging that: (1) Landis failed to negotiate in good faith; (2) Landis violated the “nondiscrimination” requirement of N.C. Gen Stat. § 62-350; and (3) Landis’ proposed new agreement terms were “unjust and unreasonable.” After granting Landis partial summary judgment on TWEAN’s failure to negotiate claim, the remaining claims proceeded to bench trial, where the discrimination claim was withdrawn by TWEAN. With only the proposed agreement term claim remaining, the Business Court raised issues of law regarding subject matter jurisdiction and the potential unconstitutionality of some of the provisions of the Statute. Because the court found that TWEAN’s proposed agreement term claim was not a “controversy sufficient for adjudication,” at common law or as a declaratory judgment, the court dismissed the case without prejudice. In its analysis, the court noted that standing and controversy were distinct requirements, and while North Carolina’s controversy requirements do not necessarily mirror federal requirements, North Carolina law does require actual controversy to convey subject matter jurisdiction upon the court.  

Potential for Declaratory Judgment under N.C. Gen Stat. § 62-350

In closing its analysis, the court noted that the type of relief requested could potentially allow for a declaratory judgment provided the case also met the controversy requirement. The court outlined the requirements that, if met, may allow for declaratory judgment as: (1) a controversy exists; (2) the party requests the declaration; and (3) the declaration will “terminate the controversy or remove and uncertainty.” The court’s finding that the facts of this case did not require evaluation of the constitutionality of any of the provisions of the statute, and its articulation of a potential road-map for declaratory judgment under the Statute, may be an indication of the court’s willingness to act under the Statute in some capacity, provided a proper controversy is presented.