MCI Communications Services, Inc. v. City of Eugene
Docket: No. 07-35935
Court: Court of Appeals for the Ninth Circuit; September 15, 2009; Federal Appellate Court
MCI Communications Services, Inc. and MCIMetro Access Transmission Services LLC (collectively "MCI") appeal the district court's dismissal of their complaint for lack of subject matter jurisdiction, contending that the court improperly classified the City’s telecommunications registration fees as "taxes" under the Tax Injunction Act (TIA), 28 U.S.C. § 1341. MCI also challenges the dismissal of its claims regarding the "non-fee" aspects of the City’s telecommunications ordinance, asserting they are intertwined with the fee provisions. The appellate court affirms in part and vacates and remands in part, exercising jurisdiction under 28 U.S.C. § 1291 and reviewing the dismissal de novo under Rule 12(b)(1).
The district court dismissed MCI’s request for declaratory and injunctive relief against Eugene, Oregon’s Ordinance No. 20083, ruling that the fees charged to telecommunications providers—2% of gross revenue and an additional 7% for using public rights-of-way—qualify as "taxes" according to precedents established in Bidart Bros. v. Cal. Apple Comm’n and Qwest Corp. v. City of Surprise. Key factors for determining whether a municipal fee is a "tax" include: (1) the entity imposing the charge; (2) the parties affected; and (3) the purpose of the revenue use. If the first two factors are not conclusive, courts focus on how the revenue is utilized, with general revenue assessments categorized as "taxes."
MCI argues against the tax classification by highlighting factors such as the ordinance's terminology (labeling the charges as "fees"), the nature of the charges as user fees, voluntary payment versus compulsory assessment, the collection methods, and federal telecommunications policy concerns. MCI claims that the fees are managed by the City Manager rather than tax collectors, are imposed on a specific class (telecommunications providers), and are intended for regulatory purposes rather than general revenue. However, the court notes that the nomenclature used in the ordinance does not govern the classification, referencing City of Surprise and related cases.
Charges labeled as "user fees" for the use of public rights-of-way do not negate their classification as taxes under the Tax Injunction Act (TIA). The Supreme Court has viewed the TIA as a significant jurisdictional barrier, indicating that local taxes cannot be enjoined by federal courts under the Telecommunications Act of 1996. In the City of Surprise case, telecommunications providers were required to pay a percentage of their gross revenues, which was deemed a tax because the revenue contributed to the municipality's general fund. Similarly, Eugene’s Ordinance No. 20083 mandates MCI to pay specific percentages of gross revenues, with some funds allocated for public benefits like Internet access and city projects, while others go into the general fund without specific designation. The district court determined that these exactions provide a general public benefit rather than merely serving the regulatory needs of the city. MCI contends that the TIA should not apply since their case involves a traditional fee rather than a business license tax. However, they fail to provide legal support for their assertion that all local fee challenges under the Telecommunications Act are exempt from the TIA, whereas City of Surprise clearly established that such revenue requirements are categorized as taxes under the TIA when directed to the municipality’s general fund.
The court reaffirms that exceptions to the Tax Injunction Act (TIA) will not be created without clear congressional intent, referencing Blangeres v. Burlington Northern. In Union Pacific R. Co., the court found explicit congressional language allowing jurisdiction under specific acts, which is not present in the current case. The municipal fee in question, deemed a "tax" under Bidart, falls outside federal jurisdiction due to the TIA, regardless of its perceived reasonableness. The court emphasizes that any exceptions to the TIA should come from Congress, not the judiciary.
MCI challenges the district court’s reliance on extrinsic evidence to conclude that the revenues from Ordinance No. 20083 benefit the public, arguing it did not receive adequate notice or opportunity to contest this characterization. The court clarifies that in Rule 12(b)(1) motions, it is not bound by the truth of the allegations in the complaint and can consider outside facts. The burden of proving subject matter jurisdiction lies with the party asserting it, and they may provide evidence beyond the complaint. The opposing party must then present sufficient evidence to demonstrate the court's jurisdiction.
Once a motion to dismiss is converted into a factual motion through the presentation of affidavits or evidence, the opposing party must provide sufficient evidence to establish subject matter jurisdiction. In this case, the City presented a declaration and supporting exhibit demonstrating the public benefit of revenue use under the ordinance and the deposit of license fee revenues into the general fund. MCI failed to counter this evidence with affidavits or other proof, arguing instead that the City’s declaration should not be credited at this stage and that all facts should favor MCI, which is not the applicable standard for a Rule 12(b)(1) motion. The court clarified that allegations from plaintiffs do not carry presumptive truthfulness and that disputed facts do not prevent jurisdictional evaluations. The district court correctly relied on facts outside the complaint to assess subject matter jurisdiction under the Tax Injunction Act (TIA), affirming the dismissal of MCI’s complaint regarding the fee provisions of Ordinance No. 20083. However, the court erred in concluding that MCI’s challenges to the ordinance's non-fee provisions were inextricably linked to the fee provisions, as MCI's claims regarding registration and licensing requirements could be considered separately. The district court dismissed these non-fee claims for judicial efficiency, citing MCI’s assertion that the ordinance’s provisions were non-severable, meaning a successful challenge to one could invalidate the entire ordinance, including the fee provisions outside the court's jurisdiction under the TIA.
Some of MCI's "non-fee" claims relate to specific provisions of Ordinance No. 20083 that can be severed from the rest of the ordinance without undermining its overall functionality. One such provision mandates telecommunications providers to construct facilities with excess capacity, increasing their costs unnecessarily. This provision could potentially be preempted and removed, allowing the remaining parts of the ordinance to remain effective, which likely would have been adopted independently. Consequently, MCI's non-fee claims are not "inextricably intertwined" with the fee challenges and should not have been dismissed on that basis. The district court must reconsider MCI’s non-fee claims according to Oregon's severability rules.
The judgment from the district court is partially affirmed and partially vacated and remanded, with each party responsible for their own appeal costs. The district court did not address whether the fee provisions of Ordinance No. 20083 might prohibit entities from providing telecommunications services, which could invoke preemption under the Telecommunications Act of 1996. MCI's examples of "in-kind" fees do not pertain to municipal license fees or services related to public rights-of-way. The Tax Injunction Act (TIA) is emphasized as limiting federal court jurisdiction over local tax matters. MCI argues distinctions between fees and taxes, but these distinctions do not materially affect the analysis, especially in light of prior cases indicating that non-compensatory fees could still be deemed excessive and burdensome, potentially leading to preemption. The severability of local ordinances falls under state law, as established in relevant case law.
