Metropolitan Government of Nashville And Davidson County, Tennessee v. Teleport Communications America, LLC
552 S.W.3d 203
| Tenn. Ct. App. | 2017Background
- Metro and TCG entered a franchise agreement (pursuant to a Metro ordinance) allowing TCG to occupy Metro public rights-of-way (PROW) and requiring a 5% gross-revenue franchise fee; the agreement included a severability clause.
- Tennessee Court of Appeals decisions (notably BellSouth v. City of Memphis) later held flat 5% gross-revenue franchise fees untethered to actual PROW costs were unenforceable. The trial court applied that precedent to invalidate Metro’s ordinance provisions setting a 5% gross-revenue fee.
- After invalidation, Metro amended its pleadings to seek quasi-contract/restitution damages for TCG’s use of the PROW from 1997–2012; TCG resisted, arguing the invalid ordinance foreclosed recovery.
- Experts disagreed on methodology: Metro’s experts used a fully-allocated cost (FAC) approach allocating joint/common PROW costs to users by cubic feet; TCG’s expert advocated a narrower, marginal-cost-focused approach.
- The trial court found Metro entitled to reasonable compensation despite the ordinance’s invalidity and awarded $550,000 (less than Metro’s claimed $1.51M, much more than TCG’s low-end figures).
- On appeal, the Court of Appeals affirmed, holding Metro could recover reasonable compensation consistent with state and federal law, that the trial court reasonably credited Metro’s methodology, and that TCG remained liable for use even after conveyance because it continued to use the facilities.
Issues
| Issue | Metro’s Argument | TCG’s Argument | Held |
|---|---|---|---|
| Whether Metro may recover damages despite the ordinance’s invalidation | Metro: Agreement existed and TCG accepted benefits; court can effectuate reasonable compensation under contract/quasi-contract | TCG: Invalid ordinance (5% gross fee) ends Metro’s right to collect; severability does not save fee provision | Held: Metro may recover reasonable compensation; invalid ordinance doesn't bar recovery where parties contracted and TCG accepted benefits |
| Proper methodology for calculating PROW compensation | Metro: Fully-allocated cost (including joint/common costs by cubic feet) yields reasonable fee | TCG: Only marginal/incremental costs (supervision/regulation) are recoverable; Metro’s method overbroad | Held: Trial court permissibly credited Metro’s FAC approach; BellSouth doesn’t mandate only marginal-cost recovery |
| Liability after TCG conveyed ownership of facilities to NES | Metro: TCG continued to use and benefit from PROW via rights to use, so liability continued | TCG: Conveyance ended ownership/use, so no post-conveyance liability; sending electrons isn’t "use" | Held: TCG remained liable for fees post-conveyance while it continued to use/benefit from the PROW under the agreement |
| Consistency with 47 U.S.C. § 253(c) (public disclosure and nondiscrimination) | Metro: Fee was publicly disclosed in the franchise agreement; award is lower than disclosed 5% and not a new retroactive rate | TCG: Court fashioned a retroactive fee without municipal ordinance; discriminatory to impose only on TCG | Held: Award consistent with § 253(c); public disclosure satisfied and award not impermissibly discriminatory |
Key Cases Cited
- BellSouth Telecommunications, Inc. v. City of Memphis, 160 S.W.3d 901 (Tenn. Ct. App.) (municipal 5% gross-revenue franchise fee invalid where not reasonably related to PROW costs)
- City of Lebanon v. Baird, 756 S.W.2d 236 (Tenn. 1988) (distinguishes municipal power existence from mode of exercising that power)