Daily Development for Thursday, September 28, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

CONSTITUTIONAL LAW; TAKINGS; TELECOMMUNICATIONS ACCESS: A state public utility commission's order that a telecommunication corporation, as a regulated utility carrier, must revise its tariffs, collapse its multiple demarcation points into a single point for a multibuilding apartment complexes and sell or lease its telecommunications equipment outside of its demarcation points to multiple service providers is an impermissible, per se taking of the utility carrier's property.

GTE Southwest Inc. v. Public Utility Commission of Texas, 10 S.W.3d 7 (Tex. Ct. App. 2000)

GTE, a telecommunications corporation, sought judicial relief from a state public utility commission order that, GTE argued, reduced its telecommunications property rights.

GTE provided existing local exchange telephone service and equipment to five large apartment complexes. When two smaller multiple service carriers unsuccessfully negotiated with GTE to gain access through GTE's equipment to the complex, they filed a complaint with the commission.

The multiple service carriers had hoped to provide "shared tenant services" consisting of local exchange and long distance voice and data transmission services and climatecontrol and video transmissions to the apartments in the complexes. Their interests would be achieved by having GTE collapse its "demarcation points," where GTE's equipment met the landowner's equipment, from a point outside each apartment building to a single point on or near the property line of the entire apartment complex. The carriers would then purchase or lease the existing cable and equipment installed between the property line and the individual apartment buildings from GTE. The multiple service carriers could then contract with landowners to provide their services to the apartment complexes. Where the demarcation points were not on the landowner's property line, the carriers would have access to GTE's cable from the property line to the demarcation point. GTE's filed tariffs authorized either demarcation point design, but said nothing about the sale or lease of the inside network.

GTE refused to accommodate the carriers' request. It counterproposed that it would install an additional demarcation point at the request location, and that the carriers or landowner could install their own network to the various buildings on the landowner's property.

In an administrative order, the public utility commission ruled that the demarcation practices of GTE violated both state and federal reasonableness and nondiscrimination requirements. It ordered the corporation to revise its tariff /demarcation structure to provide for the development of single demarcation points for multiunit premises and to permit others to possess and use its telecommunications equipment "for an appropriate compensation."

The Court of Appeals reversed, by a 21 vote. The majority opinion was written by a retired justice and joined in by the Chief Justice, firmly upholding the property rights of the telecommunications corporation and overruling the public utility commission's order on several grounds. A strong dissent refuted the majority opinion point by point.

The majority first held that the order, in requiring that its cables and utility facilities be surrendered to use by others, constituted a physical, per se taking of the telecommunications corporation's property which violated Fifth Amendment U.S. Constitution protections. Second, it overruled the commission's order on the grounds that the commission acted outside its statutory authority, reasoning that state public utility commissions have no inherent powers, only specific legislative authority to act, which did not exist in this situation. The Court refused to imply any general commission power to allow third parties to use private telecommunications equipment, regardless of that equipment's public utility usage, and upheld these the private property interests of the telecommunications corporation when weighed against the commission's public policy interests in promoting a diversity of telecommunications utility providers.

The court rejected the public utility commission's argument that its order did not constitute a taking because it provided for the recovery of "appropriate compensation" for GTE.

Finally, the Court held that the commission erred in its determination that GTE acted unreasonably and in a discriminatory manner. In the court's view, GTE's simple refusal to surrender its property to others cannot be so characterized. The Court remanded the case to the commission, however, for further determinations as to whether GTE's other demarcationpoint practices, outside the scope of this case, may in fact be unreasonable and discriminatory,.

The court careened back and forth between discussion of takings law and discussion of whether the action taken by the commission was justified by the commission's delegated authority. It appears that, in the end, the case may stand for no more than the proposition that the Commission lacked the authority to issue this particular order.

On the takings question, the court addressed the Commission's argument that there was no taking because its order provided for "appropriate compensation" to GTE for its accommodations. It concludes that compensation in this matter is not an answer to the takings claim, noting that the New York City order in Loretto provided for compensation, but was still found to be a taking.

The dissent, far more organized, concludes that not only state law, but federal law requires the accommodation here. As to the takings issue, it notes that Loretto in fact remanded for a determination of whether the essentially token compensation payable in that case rendered the action a taking quite a different issue than that presented in this case.

The dissent also made an assertion that is difficult to discern from the majority opinion. It states that the only issue here involves the length of GTE cable from the demarcation points to the landowner's property line, in those instances where the required demarcation points are not placed directly on the line.

Comment 1: The editor is no fan of forced access. Let the market operate. But from a strictly legal standpoint, isn't the dissent on target here on the takings issue? GTE is getting paid. It's simply a question of whether there is an adequate public purpose to support the taking and whether the compensation is enough. GTE undoubtedly had the power to condemn to obtain its rights of way in the first place. Why can't other regulated carriers have similar power against GTE. Isn't it the same public purpose? And the compensation issue isn't ripe.

Even if GTE were not paid, the editor perceives a difference between a regulated public utility, established and operating through special regulatory approval and with the power to condemn, and ordinary landowners. At least with respect to property used in its regulated activity, it would have been appropriate in the first instance to require that it be shared. The only question the editor has is whether sharing can be imposed later, after the investment decisions are made. If no special costs are involved, the editor believes that eventually the courts will find that such accommodation requirements are OK.

Comment 2: This issue was discussed in an earlier DD, GTE Northwest, Incorporated v. Public Utility Commission of Oregon, 900 P.2d 495 (Or. 1995), in which the editor discussed extensively the question of the continued vitality of Loretto. This DD was posted on 12/13/95, and involved the processed of "forced collocation" without compensation. It's on the DIRT Website: http://www.umkc.edu/dirt/

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.

Parties posting messages to DIRT are posting to a source that is readily accessible by members of the general public, and should take that fact into account in evaluating confidentiality issues.

ABOUT DIRT:

DIRT is an Internet discussion group for serious real estate professionals. Message volume varies, but commonly runs 5 ‑ 10 messages per workday.

Daily Developments are posted every workday.

To subscribe to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Dirt [your name]

To cancel your subscription to Dirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Dirt

For information on other commands, send the message Help to the listserv address.

DIRT has an alternate, more extensive coverage that includes not only commercial and general real estate matters but also focuses specifically upon residential real estate matters. Because real estate brokers generally find this service more valuable, it is named “Brokerdirt.” But residential specialist attorneys, title insurers, lenders and others interested in the residential market will want to subscribe to this alternative list. If you subscribe to Brokerdirt, it is not necessary also to subscribe to DIRT, as Brokerdirt carries all DIRT traffic in addition to the residential discussions.

To subscribe to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Subscribe Brokerdirt [your name]

To cancel your subscription to Brokerdirt, send an e-mail to:

To:	ListServ@listserv.umkc.edu
Subject:	[Does not matter]
Text in body of message	Signoff Brokerdirt

DIRT is a service of the American Bar Association Section on Real Property, Probate & Trust Law and the University of Missouri, Kansas City, School of Law. Daily Developments are copyrighted by Patrick A. Randolph, Jr., Professor of Law, UMKC School of Law, but Professor Randolph grants permission for copying or distribution of Daily Developments for educational purposes, including professional continuing education, provided that no charge is imposed for such distribution and that appropriate credit is given to Professor Randolph, DIRT, and its sponsors.

DIRT has a WebPage at: http://www.umkc.edu/dirt/