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03/26/97 CITY CHICAGO v. CHICAGO FIBER OPTIC

March 26, 1997

THE CITY OF CHICAGO, PLAINTIFF-APPELLEE,
v.
CHICAGO FIBER OPTIC CORPORATION, D/B/A METROPOLITAN FIBER SYSTEMS OF CHICAGO, INC., DEFENDANT-APPELLANT.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. No. 94-CH-2064. THE HONORABLE ALBERT GREEN, JUDGE PRESIDING.

Released for Publication May 12, 1997.

Presiding Justice Cousins delivered the opinion of the court. Gordon and Leavitt, JJ., concur.

The opinion of the court was delivered by: Cousins

PRESIDING JUSTICE COUSINS delivered the opinion of the court:

The plaintiff, City of Chicago (the City) filed a declaratory judgment against the defendant, Chicago Fiber Optic Corp. d/b/a Metropolitan Fiber Systems of Chicago, Inc. (MFS), seeking a declaration that a contract between the City and MFS was enforceable. MFS filed a counterclaim against the City, seeking a declaration to the contrary. The contract arose out of an ordinance that permits MFS to run fiber optic cable for its telecommunications network under the City streets. The City imposed a franchise fee on MFS in return for MFS's use of the public ways and the City's freight tunnel system to place the fiber optic cables. MFS argued that the contract was void because it violated the public policy expressed by the Illinois Supreme Court in American Telephone & Telegraph Co. v. Village of Arlington Heights, 156 Ill. 2d 399, 620 N.E.2d 1040, 189 Ill. Dec. 723 (1993)(hereinafter AT&T). The parties filed cross-motions for summary judgment. The trial court granted the City's motion and denied MFS's. On appeal, MFS contends that: (1) the City's franchise fee is illegal under AT&T and is unenforceable as a violation on public policy; (2) the trial court misinterpreted AT&T and ignored the breadth of the supreme court's holding in that case; and (3) the City is barred from denying the illegality of its franchise fee based on issue preclusion.

BACKGROUND

MFS is a telecommunications company that serves customers within the Chicago area. On March 12, 1986, MFS entered a contract with the City, agreeing to pay the City a franchise fee in return for its use of the City's public ways and freight tunnel system to provide telephone service within the City of Chicago. The contract required MFS to pay the "greater of" a minimum annual fee (set at $30,661), a "capacity based fee" (calculated based upon the number of lineal feet of MFS's fiber optic cable in the public way), or 8% of "the annual gross billings of MFS for the provision of telecommunications services or facilities in the City of Chicago, with deductions for city transaction or utility taxes on those billings. The city council approved the contract and embodied the contract in an ordinance. The ordinance recites that the City wished to grant a franchise to MFS "to facilitate the development of a competitive fiber optic telecommunications industry serving the City of Chicago."

Pursuant to the contract, MFS placed fiber optic telecommunications cables in the public ways and freight tunnels owned by the City. Since then, MFS has provided telephone service to customers within Chicago. MFS provides nonswitched private line and access telecommunications services within the Chicago area in competition with the principal local exchange carriers, Ameritech and Centel Telephone Company. Most of MFS's services involve interstate and international communications.

In 1993, MFS requested an amendment of the 1986 contract to extend the geographic area within the City in which MFS was permitted to use the public ways. On October 7, 1993, the city council passed an amended ordinance embodying the contract modifications. Under the contract, the City provides various services, including inspection and maintenance, related to the safe use of the public ways and freight tunnel system. MFS, in turn, is required to pay the City either the minimum fee or the specified percentage of its gross billings in Chicago and to maintain an insurance bond in the amount of $5 million.

MFS complied with the terms of the contract from March 12, 1986 through February 14, 1994. In July 1992, MFS asserted its option under the contract to begin paying 3% of its gross billings to Chicago residents if that figure exceeded the minimum fee called for by the contract. In October 1993, MFS began paying a fee equalling 3% of its monthly gross billings in Chicago instead of the minimum fee.

In 1993, MFS decided to stop paying the City's fee based on two decisions: American Telephone & Telegraph Co. v. Village of Arlington Heights, 156 Ill. 2d 399, 620 N.E.2d 1040, 189 Ill. Dec. 723 (1993), and Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d 1388 (7th Cir. 1992); on remand, 845 F. Supp. 1234 (N.D. Ill. 1993); vacated, 845 F. Supp. 1237 (N.D. Ill. 1994). The cases held, in essence, that a city does not have a proprietary interest in the its public streets, but only a regulatory interest. Therefore, a municipality cannot charge a rental fee for the use of its public streets. MFS asserted that the City was obligated to provide MFS with access to and the use and maintenance of the public ways and that MFS was not obligated to pay the fee under the contract.

The City filed an action against MFS for declaratory judgment and other relief. MFS filed a five-count counterclaim against the City. The City later moved to dismiss all the counts of its complaint except the one seeking declaratory relief. The trial court granted the motion. The City filed a motion for summary judgment, seeking declaratory judgment against MFS. MFS opposed the motion and filed its own motion for partial summary judgment against the City on two of the counts of its counterclaim. After briefing and argument, the circuit court found that MFS had breached its contract with the City and granted the City's motion for summary judgment. The court denied MFS's motion for partial summary judgment. MFS appeals.

We affirm.

ANALYS ...


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