The opinion of the court was delivered by: WILLIAM T. HART
Diginet, Incorporated, the lessee of fiber optic circuits operated in the City of Chicago by defendant and cross-defendant Western Union ATS, Inc. ("ATS"), brought this diversity action for a declaration of its rights. It also named the City of Chicago as a defendant. Fiber optic cables of ATS are located under the streets of the City. The City had notified Diginet that ATS had no authority to lease fiber optic cables because it had no franchise from the City. No franchise had been granted because ATS disputed the City's demanded franchise fees. On the strength of the City's notice, Diginet withheld lease payments, and ATS threatened to cancel the lease. The City filed a cross-claim to restrain ATS from expanding its circuits without a franchise from the City. This court granted the City a preliminary injunction restraining ATS from expanding its system until the dispute was resolved. 759 F. Supp 1285 (N.D. Ill. 1991). The original dispute between Diginet Incorporated and ATS was resolved. ATS appealed from the preliminary injunction. The Court of Appeals for the Seventh Circuit reversed the preliminary injunction and resolved this case on the merits against the City. It held that, under Illinois law, the City did not have a right to condition street access to fiber optic cables on the payment of franchise fees. Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d 1388 (7th Cir. 1992) ("Diginet").
The parties are now before this court on motions and cross motions for summary judgment, to amend the pleadings, for declaratory and injunctive relief and assessment of costs.
Effect of the Appellate Rulings
This case has already been resolved on the merits by the Court of Appeals subject only to a contrary ruling by the Illinois Supreme Court in the AT & T case. This Court's authority is very narrow. Barrow v. Falck, 1993 U.S. App. LEXIS 32217, No. 93-2004, slip op. at 2-3 (7th Cir. Dec. 9, 1993). In AT & T, a telephone company sought to enjoin several municipalities from interfering with installation of fiber optic cable under public streets across the state. The Illinois Appellate Court upheld injunctive relief. After reversing itself on rehearing, the Supreme Court of Illinois held that cities could not condition consent to allow installation of cable under public streets on the payment of franchise fees. The Supreme Court of Illinois announced the same views first expressed by the Seventh Circuit in Diginet. The author of the Supreme Court opinion, in his original dissent, cited the Seventh Circuit opinion with approval. See AT & T v. Village of Arlington Heights, 1992 WL 356097 *17 (Dec. 4, 1992) (Heiple, J., dissenting), superseded after rehearing, AT & T, supra. His views later became the views of the majority of the Supreme Court. There is no conflict between AT & T and Diginet. The same legal analysis underlies both opinions.
The City argues, nevertheless, that it is entitled to require franchise fees for ATS's use and occupation of the streets notwithstanding the Diginet and AT & T opinions. It contends that AT & T can be distinguished because there the fiber optic cables were only to pass through the municipalities, whereas here ATS seeks to serve customers by extensions within the city. The City relies on the fact that in its opinion the Supreme Court said that "all that plaintiffs seek here is to get from one side of town to the other." However, the City's position overlooks the rationale of the Supreme Court's opinion - that "municipalities do not possess proprietary powers over the public streets. They only possess regulatory powers." AT & T, 620 N.E.2d at 1044. The court also stated that "streets do not exist and were not created as either obstructions or revenue-producing property for municipalities." AT & T, 620 N.E.2d at 1047. Any payment to which a city would be entitled could only be for actual regulatory costs, including inspection, regulatory, administrative and repair costs associated with the tunneling under public streets.
Moreover, the City's position is directly contrary to Diginet. The Court of Appeals stated clearly that "neither is the impact here purely local." Diginet, 958 F.2d at 1400. Given the statewide and interstate character of the service ATS renders, it is not possible to carve out the exception for which the City contends, at least within the fiber optic cable business.
Accordingly, the City's claims for past and future franchise fees must be denied, and ATS is entitled to a declaration that the City may not withhold access to the streets because of failure on the part of ATS to pay any franchise fees.
There is also pending before the Court a petition of ATS for damages because of the effects of the preliminary injunction.
The parties are directed to meet to ...