Daily Development for Wednesday, July 18, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

CONSTITUTIONAL LAW; DUE PROCESS; TAKINGS; REGULATORY TAKINGS:   City’s requiring connection of all new construction to city’s broadband telecommunications system is an unconstitutional taking. 

Home Builders Ass’n v. City of Lebanon, 854 N.E.2d 1097 (Ohio App. 12 Dist. 2006), appeal den’d 854 N.E. 2d 1097 (8./2/06). 

The City of Lebanon (the “City”) constructed a broadband telecommunications system (the “System”) to which homeowners could subscribe for computer, television or telephone communications. To connect to the service, the City would wire from the public right-of-way, across the private property to the exterior wall of the structure. Initially, the City also used the System for automated electric meter reading to approximately 200 homes but determined the service was too costly to install to additional homes. 

 In 2002, the City adopted an ordinance requiring all new construction to connect to the System and to pay a telecommunications connection fee (the “Ordinance”).  In June 2002, Home Builder’s groups challenged the Ordinance on three major claims: (1) mandated connection to the System constituted a taking without just compensation; (2) the city’s action constituted abuse of the city’s corporate power; and (3) the ordinance violated the Homebuilders constitutional rights under Section 1983.  The Homebuilders a sought a declaratory judgment that the Ordinance was unconstitutional, preliminary and permanent injunction prohibiting the city from enforcing the ordinance and attorneys’ fees. 

The common pleas court ruled for the Homebuilders on the first claim - that the mandatory connection did constitute an unconstitutional taking. The court, however, found that the fee was enforceable provided that it was charged only to those requesting access to the System.  On the second two claims, the common pleas court found for the City because the Homebuilders did not have taxpayer standing under the state law corporate action claim, and with regard to the Section 1983 claim, had not exhausted state law remedies. 

The court dismissed all remaining claims of the parties, and the Homebuilders and the City appealed to the Court of Appeals of Ohio Twelfth District (the “Court”). 

On the first claim of mandatory connection, the City in fact admitting that the extension of the connecting wire could constitute a taking under  Loretto v. Teleprompter Manhattan CATV Corp 458 U.S. 419 (1982), but claimed that the Homebuilders effectively consented to the requirement when they requested electrical service and agreed to abide by the rules of the City’s electric department.  The Court found that even though the wires are a small invasion, under Loretto  any permanent occupation for which just compensation is not paid constitutes an unconstitutional taking.  The Court found the Homebuilders did not consent because the City was using the System to read meters in only approximately 200 homes and the hope to use the System in the future was insufficient to find consent.  In short, consent to electrical service was not consent to a hook-up to a telecommunications network. 

Second, the City argued that the fee was wholly severable from the connection and thereby could still be assessed on all new construction.  The Court found the court of common pleas correctly refused to sever the fee requirement based upon the Ohio Supreme Court’s three part test for severing partially unconstitutional laws: (i) whether provisions are capable of separation, (ii) the connection with the general scope of the whole, and (iii) whether insertion of words is necessary to separate the constitutional from the unconstitutional portion.  The Court affirmed the court of common pleas holding that the fee was only partially severable - it could be assessed only as to those new units requesting a System connection.

The Court affirmed the denial of 1983 relief because the United States Supreme Court created a special rule for Section 1983 claims requiring exhaustion of state law remedies and in this case, the Homebuilders could have sought mandamus.  Because the Homebuilders were not entitled to Section 1983 relief, the Court held they were not entitled to attorneys’ fees. 

As to the issue of  taxpayer standing, the court explained that to have taxpayer standing, a party’s aim must be to enforce a public right and not where the goal was the taxpayer’s own benefit.  In this case, the Court found that the Homebuilder’s goal was sufficiently private and therefore upheld the finding of the court of common pleas.  Judgment of the court of common pleas affirmed.

Comment 1: The City couldn’t just add the cost of the connection to other fees because it was related to a service that could only be provided through a wire that the City had no right to connect.  It couldn’t claim it was a tax, presumably, because of uniformity of taxation requirements. 

Comment 2: So, installing the wires is a taking.  Then why doesn’t the City just compensate the homebuilders and go ahead with its installations?  And why was the appropriate relief an injunction, which the court granted?  As to the former, the City probably had the option to do this, but elected to forego the opportunity, since it couldn’t collect the fee from non-consenting homes.  But would the required compensation for those itty bitty wires really amount to much? 

Comment 3: Stepping back from this particular dispute - what exactly is going on here?  Why is a city entering into this highly competitive area of telecommunication access?  Certainly not because private industry is not providing the equivalent service.  (Time Warner Cable attempted to intervene in the case but was denied standing.) And certainly not because there is a critical public need.  The City wasn’t giving away its service, it was selling the service.  Why should a municipal agency be able to flex its considerable tax free power to compete to provide service that it being readily provided through private sources?  There’s a story here. 

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