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BELLSOUTH TELE. v. City of Lafayette
Citation: 919 So. 2d 844Docket: 05-1478, 05-1505
Court: Louisiana Court of Appeal; January 4, 2006; Louisiana; State Appellate Court
Bellsouth Telecommunications, Inc. appeals the denial of its motion for judgment challenging the validity of a bond revenue ordinance issued by the Lafayette City-Parish Consolidated Government, which aimed to develop a government-run communications network. Bellsouth contends that the ordinance violates the Local Government Fair Competition Act (Fair Competition Act), specifically regarding cross-subsidization and single enterprise fund requirements. The district court dismissed Bellsouth's motion, finding no violation of the Fair Competition Act. The City of Lafayette responds by appealing certain district court rulings, arguing that the court did not adequately consider evidence presented by Bellsouth and erred in interpreting the Fair Competition Act concerning the use of residual revenues. Additionally, Lafayette residents Elizabeth A. Naquin and Matthew B. Eastin appeal the dismissal of their own motion for judgment, which sought similar relief to Bellsouth's. Their dismissal was based on their intervention in the Bellsouth case, which they argue limited their ability to assert separate claims. They claim the district court's ruling denied them a hearing on issues not included in Bellsouth's motion. The City has filed a motion to dismiss the appeals, asserting they are untimely, while Naquin and Eastin seek an extension to file their appellate brief beyond the standard timeframe prescribed by law. Expedited consideration has been granted to the consolidated matters under La.R.S. 13:5128. The judgment of the district court dismissing Bellsouth's motion for judgment is reversed, and Bellsouth's request for relief is granted by enjoining the City from issuing bonds authorized by the ordinance until compliance with applicable law is achieved. The appeals of Naquin and Eastin are dismissed as untimely, while all other district court rulings are affirmed. Key issues include: 1. Bellsouth's concerns about the City's bond revenue ordinance potentially violating the Fair Competition Act by using residual revenue from utility services for bond repayment and by establishing multiple funds for a new communications system instead of a single enterprise fund. 2. The City's defenses questioning the jurisdiction of the trial court over Bellsouth's challenge, the admissibility of its evidence related to accounting rules, and the court's interpretation of residual revenue use as a loan under the Fair Competition Act. 3. Naquin and Eastin's issues focus on the timeliness of their appeal and the dismissal of their Motion for Judgment without resolution of certain issues. The factual background indicates that on July 16, 2005, City voters approved a proposition authorizing the issuance of up to $125 million in revenue bonds for constructing and improving a local communications network as well as possibly enhancing the City’s utilities system. The bonds are to be payable primarily from the communications system's net income and secondarily from the utilities system's revenues. The City may redirect any unnecessary bond proceeds from the Communications System to fund improvements for the Utilities System, which encompasses waterworks, electric power, light, and sewer systems, as outlined in the capital budget. Following a special election, the Lafayette City-Parish Consolidated Government Council adopted Ordinance Number X-XXX-XXXX on September 6, 2005, authorizing the incurrence of debt and issuance of revenue bonds to establish a communications system providing telephone, cable television, and high-speed internet services. The funding for this system is proposed through the issuance of up to $125 million in twenty-five-year revenue bonds, as detailed in Section 5 of the ordinance. Challenges to the bond ordinance were initiated on October 6, 2005, by Naquin and Eastin, alongside a separate motion filed by Bellsouth the following day. Both motions sought a judgment under La.R.S. 13:5125, with Bellsouth's hearing set for November 3, 2005, and Naquin and Eastin's for November 14, 2005. Naquin and Eastin later intervened in Bellsouth’s case to expedite their hearing but retained their original motion. The district court addressed the City’s claims of peremption and lack of subject matter jurisdiction regarding Bellsouth's motion, ruling that the sixty-day challenge period did not apply since the motion contested the bond revenue ordinance rather than the bond election. Consequently, the court overruled the City’s exceptions, deeming the subject matter jurisdiction moot, and provided a written judgment on November 14, 2005. The district court addressed challenges to a bond ordinance regarding the use of revenues from both a new communications system and the City's existing utilities system to repay bonds. Bellsouth and intervenors contended that this practice violated prohibitions against cross-subsidization under the Fair Competition Act (La.R.S. 45:844.41, et seq.) and that the ordinance unlawfully established five funds instead of a single enterprise fund as mandated by La.R.S. 45:844.51(A)(1). The court rejected these arguments, citing La.R.S. 45:844.52, which allows local governments to pledge utility resources for favorable bond terms. Bellsouth further argued, referencing La.Civ. Code art. 3165, that the arrangement did not constitute a lawful pledge since it involved repayment prior to default. The court countered that this article pertains to the pledged asset rather than its revenue, ruling that the revenue was the "fruits" of the utility system and thus subject to pledge under La. Civ. Code art. 3168, which permits access to such fruits without default. The court also noted that, as pledges are contracts, parties can agree on lawful terms absent specific prohibitions. The court dismissed the City's claim that residual revenues constituted a loan, determining that the funds were to be placed in a "Sinking Fund," not a "Receipts Fund," as required for loans by the Fair Competition Act. Additionally, the court found no violation concerning the single enterprise fund requirement, stating the City complied by promising to establish such a fund in the future. Following these rulings, Naquin and Eastin's motion for judgment was dismissed with prejudice, and they were enjoined from pursuing certain legal provisions. Bellsouth filed an appeal on November 17, 2005, with Naquin and Eastin following suit on November 21, 2005. Both appeal petitions were filed on time under La.R.S. 13:5128, which mandates a ten-day filing period for appeals concerning bond validity judgments. The appeals were consolidated by the court. BellSouth raises issues related to the Fair Competition Act, which governs Louisiana's cable television and telecommunications expansion. The Act emphasizes that local governments must not discriminate against private providers when offering these services and may engage in bundling or other lawful practices permitted for private competitors. The central legal question is whether the Fair Competition Act prohibits using utility revenues for bond repayment as outlined in the City’s ordinance. This will be assessed through a de novo review. The court will interpret the relevant statutes according to established legislative guidelines, emphasizing the mandatory nature of statutory language. The district court's interpretation of the permissible use of pledged utility resources under the Fair Competition Act was found to be legally erroneous. The court concluded that using residual utility revenues for bond repayment, before any default occurs, does not constitute a legal pledge and infringes upon the Act's prohibition against cross-subsidization, specifically referencing La.R.S. 45:844.53(2). La.R.S. 45:844.52 of the Fair Competition Act authorizes local governing authorities to issue bonds to finance capital costs for covered services, contingent upon a resolution detailing the purpose and dollar amount of the bonds. The bonds must be secured solely by revenues from the covered services, prohibiting the use of general or enterprise funds for origination or financing costs, although such funds may be advanced for feasibility studies or start-up costs, provided they are repaid with interest. Local governments may use their utility resources to secure favorable bond terms, but this does not extend their bonding authority beyond existing state law. Section 9 of the Lafayette City-Parish Council ordinance aligns with La.R.S. 45:844.52(C)(3) by pledging Residual Revenues from the utility system to secure better bond terms. Conversely, Section 10 appears to violate La.R.S. 45:844.52(C)(1) by suggesting bond repayment from sources beyond the Communications System's revenues, stating that bonds will primarily be repaid from Net Revenues and, if insufficient, from Residual Revenues. This section classifies the bonds as Subordinated Indebtedness of the Utilities System, as established in Ordinance No. 0-122-2004. Article IV clarifies that the bonds will not count as general obligations of the Issuer and will be secured solely by the Net Revenues from the Communications System and the Residual Revenues. Bondholders do not have the right to demand the Issuer exercise its ad valorem taxing power or to compel any form of taxation on property to pay the Bonds or interest. Payment obligations for the Bonds are secured solely by Net Revenues and Residual Revenues as outlined in the document. The principal, premiums, and interest on the Bonds are secured by an irrevocable lien on Net Revenues, which take precedence over other liens, except as specified. If Net Revenues are inadequate for Bond Service Requirements, Residual Revenues may be used, but this pledge is subordinate to existing pledges under the Utilities Bond Ordinance until those Residual Revenues are released from a capital additions fund. The Utilities System may loan funds to the Communications Division under the Communications Act, with those loans to be managed by the Utilities Department and deposited in the Receipts Fund. The Bonds are categorized as Subordinated Indebtedness, further secured by pledges of Residual Revenues, with the Consulting Engineer reviewing utility service rates annually to ensure compliance with rate covenants. The financial obligations from issuing the Communications System Revenue Bonds will first be covered by the Net Revenues of the Communications System, and, if insufficient, by Residual Revenues, with the stipulation that only the portion not required for existing obligations may be used. This raises concerns regarding compliance with La.R.S. 45:844.52(C)(1) and (C)(3), which mandate that bonds be secured solely from revenues generated by the City and limit pledging existing utility resources for securing favorable bond terms. Bellsouth contends that the district court misinterpreted the appropriate application of existing utility resource pledges under the law. The argument asserts that the district court overlooked the distinction between a "pledge of resources" authorized by La.R.S. 45:844.52(C)(3) and an impermissible assignment of revenue from other utility divisions, which violates La.R.S. 45:844.53(2)'s prohibition against cross-subsidization using tax dollars or income from other services. It contends that bondholders should access pledged revenue from other utilities only after a payment default and subsequent compliance with legal requirements for claiming pledged property, as outlined in La.Civ. Code art. 3165. The Louisiana Constitution Article 6, Section 37(A) specifies that a political subdivision can only pledge income and revenues from a specific public utility for bond security, not from other sources. A "pledge" is defined as a debtor-creditor agreement for security, per La.Civ. Code art. 3133. La.Civ. Code art. 3165 mandates that a true pledge cannot be disposed of without a default event and a judgment. The district court mistakenly concluded that the pledged assets' fruits do not necessitate default, relying on La.Civ. Code art. 3168, which states that the fruits of a pledge are part of it. However, the clear language of La. Const. art. 6, 37(A) indicates that the pledge refers specifically to the public utility's income and revenues, rejecting the notion that the pledged assets and their fruits are interchangeable. The argument aligns with Bellsouth's position that the bond repayment scheme resembles an assignment rather than a pledge, referencing the Louisiana Supreme Court's distinction in Scott, 231 La. 368, 91 So.2d 569. An assignment is defined as a sale that immediately transfers title to the transferee, while a pledge allows the debtor to retain title and provides the creditor with security for debt repayment. The distinction is critical, as an assignment enables immediate access to the asset for debt recovery, whereas a pledge requires default before such access is allowed. The City's ordinance fails to require a default before utilizing residual revenues for bond repayment, indicating a prohibited cross-subsidization under La.R.S. 45:844.53(2). The ordinance suggests that residual revenues will be used beyond mere financial improvements for bonds, directly violating La.R.S. 45:844.53. It mandates that residual revenues be deposited into a Sinking Fund before bond payments are due, and it allows the City to raise utility rates to cover any shortfalls in bond payments, undermining the Fair Competition Act's intent to prevent unfair competition by restricting how local governments use their existing utility revenues. Furthermore, the Fair Competition Act necessitates the establishment of a single enterprise fund to manage operations of covered services, as stipulated in La.R.S. 45:844.51. Local governments are restricted from transferring appropriations or balances between different enterprise funds, except under specific provisions outlined in Louisiana Revised Statutes (R.S.) 45:844.52(C)(2) and R.S. 45:844.55(D). These statutes allow for certain transfers and require the Louisiana Public Service Commission to establish rules to govern cost allocation and prevent cross-subsidization. The bond ordinance's Section 4 acknowledges the obligation to create a "communications services enterprise fund" as mandated by R.S. 45:844.51(A)(1). However, the City failed to establish this fund, opting instead for five separate funds, which constitutes a violation of the statute. In the appeal process, the City argues that Bellsouth's challenge to the ordinance was untimely, having been filed over sixty days post-election, thus claiming the district court lacked jurisdiction. The City references La. Const. art. 6. 35(A), which stipulates a sixty-day limit for legal challenges following a bond election. However, the court found no error in the district court's ruling, emphasizing that the Louisiana Bond Validation Law, which details remedies for challenging government bonds, grants district courts the authority to address these issues within the specified timeframes outlined in La. Const. art. 6. 35. Section 35(A) specifically allows for the contestation of bond elections for sixty days after results are promulgated. No individual or entity may contest the regularity, legality, or formality of elections, tax provisions, or bond authorizations after a specified time period. If validity is not contested within sixty days, the authority to incur debt, levy taxes, or issue bonds is conclusively presumed valid, with no court jurisdiction over such matters. Section 35(B) establishes a separate thirty-day period for contesting ordinances or resolutions related to bond issuance, requiring publication in an official journal or local newspaper. After this period, no challenges can be made to the legality of the ordinance or resolution, which is then presumed compliant with all legal requirements. The document references principles of statutory interpretation to clarify that Sections 35(A) and 35(B) provide distinct peremptive periods for contesting elections and ordinances. It emphasizes that the application of constitutional peremptive statutes as argued by the City would yield illogical outcomes and ignores the explicit language of the statutes. Additionally, the Fair Competition Act mandates both an election and the adoption of a bond resolution, highlighting the legislature's intent for a two-step process in municipal bond issuance and the allowance for separate challenges at each stage. Article XI, Section 11.5 of the City's ordinance allows a thirty-day period for interested parties to contest the legality of an ordinance following its publication. Bellsouth filed a motion for judgment within this timeframe, specifically within thirty days of the bond ordinance's published notice on September 9, 2005, making its challenge timely. The district court's dismissals of exceptions for peremption and lack of subject matter jurisdiction were affirmed. The City contended that the district court erred by not considering evidence related to the Louisiana Public Service Commission hearings. However, the district court has broad discretion regarding evidentiary rulings, and its decision on what evidence to admit or exclude will not be overturned unless there is clear abuse of discretion. Although there were disagreements with the district court's legal conclusions, the evidence presented was substantial enough to support the decision to accept only certain proffered evidence from the Public Service Commission. Regarding the use of Residual Funds from the Utilities Department, the City argued that these funds constituted a permitted loan. It is permissible for the City to loan Communications Services funds from other sources at market rates. While the ordinance permits loans from the Utilities System to the Communications System, a thorough reading indicates that this section operates independently from others concerning the use of Residual Funds. Therefore, the district court correctly declined to classify the repayment scheme in the ordinance as a loan. Naquin and Eastin's appeal involved a petition related to a district court judgment from November 14, 2005, which dismissed their motion for judgment. According to La.R.S. 13:5128, a petition for appeal must be filed within ten days of the judgment, and the appeal is contingent upon timely filing the certified record and brief with the appellate court within twenty days. In this instance, the deadline for filing was December 4, 2005, which fell on a Sunday. Naquin and Eastin's appellate brief was due by December 5, 2005, as Sunday was a legal holiday, with the district court record required to be certified by that date. Although the record was certified on December 1, 2005, it was lodged in the court on December 6, and the appellants filed their brief on December 7, which was two days past the deadline established by Louisiana Revised Statutes (La.R.S.) 13:5128. They requested an extension for the late filing, while the City moved to dismiss the appeal and raised an exception for lack of subject matter jurisdiction due to the untimeliness of the brief. La.R.S. 13:5128 mandates that an appeal is only valid if filed within ten days of the judgment and the brief submitted within twenty days. The term "shall" in legislative language is interpreted as mandatory, leaving the court without the authority to overlook the explicit requirements of the statute. As Naquin and Eastin did not adhere to the timing requirements, their appeal was dismissed as untimely. The court reversed a prior judgment related to Bellsouth Telecommunications, enjoining the Lafayette City-Parish Consolidated Government from issuing certain bonds until legal compliance is achieved, and assessed all appeal costs to the Government. The appeal by Naquin and Eastin was dismissed at their expense. Louisiana Revised Statutes 13:5129 establishes that a decree validating a bond issue is definitive and cannot be contested in later lawsuits. Louisiana Code of Civil Procedure Article 531 allows defendants to dismiss subsequent lawsuits related to the same transaction by filing a lis pendens exception, ensuring that the first final judgment is conclusive if no exception is filed. Additional statutes (La.R.S. 45:844.51(A)(3), 45:844.52(C)(1), 45:844.52(C)(2), 45:844.53(2)) outline regulations relevant to telecommunications and cable services, collectively termed "covered services," which encompass various technologies unless stated otherwise (La.R.S. 45:844.43(6)). "Start-up costs" refer to expenses incurred by local governments for feasibility studies and securing financing, excluding capital costs (La.R.S. 45:844.43(18)). The ordinance’s Article 1, Section 1.1 provides definitions but lacks a definition for "Residual Revenues," while the term "resources" is also undefined in the Fair Competition Act. Furthermore, La.R.S. 45:844.53(4)(c)(iii) prohibits local governments from engaging in cross-subsidization or pricing practices contrary to federal or state law, including Louisiana Public Service Commission regulations.