'051386JE. John H. Ridge, WSBA No Maren R. Norton, WSBA No

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1 David R. Goodnight, WSBA No John H. Ridge, WSBA No Maren R. Norton, WSBA No STOEL RlVES LLP 600 University Street, Suite 3600 Seattle, W A Telephone: (206) Facsimile: (206) Pro Hac Vice App. Pending Brad S. Daniels, OSB No bsdaniels@stoel.com STOEL RlVES LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR Telephone: (503) Facsimile: (503) Alex M. Duarte, OSB No Alex.Duarte@qwest.com Qwest Corporation 421 SW Oak Street, Suite 810 Portland, OR Telephone: (503) Facsimile: (503) Attorneys for Plaintiff UNITED STATES DISTRlCT COURT DISTRlCT OF OREGON QWEST CORPORATION, a Colorado corporation, NO. '051386JE v. Plaintiff, COMPLAINT FOR DECLARATORY JUDGMENT THE CITY OF PORTLAND, an Oregon municipal corporation, Defendant. Page 1 - COMPLAINT FOR DECLARATORY JUDGMENT Seatt1e

2 For its complaint against the City of Portland (the "City" or "Portland"), plaintiff Qwest Corporation (" Qwest") alleges as follows: INTRODUCTION 1. Qwest has provided telecommunications services to residents, businesses and governmental, quasigovernmental and educational entities in the Portland metropolitan area for more than a century. To provide these services, Qwest requires access to the City's public rights-of-way, where it deploys telecommunications facilities and related equipment. 2. The public rights-of-way at issue are under the exclusive control of the City. The City generally permits access to its rights-of-way solely pursuant to City-issued franchises. Qwest is currently operating under a Temporary Revocable Permit, which it agreed to enter into only under a reservation of rights. 3. The City is abusing its regulatory authority by imposing unreasonable and discriminatory access terms and conditions on telecommunications providers. For example, the City is improperly requiring telecommunications carriers to provide the City with free or belowcost use of conduit, fiber and other related equipment and facilities. 4. The City is using the valuable assets obtained from franchised telecommunications providers to develop and operate its own telecommunications company, the Integrated Regional Network Enterprise (" IRNE"), which directly competes with Qwest and other providers. The City also gives preferential treatment to IRNE by not imposing the same right-of-way terms and conditions on IRNE that it does on other telecommunications providers. The City's operation ofirne has created an uneven telecommunications market that is neither fair and balanced nor competitively neutral and nondiscriminatory, as required by section 253 of the Federal Telecommunications Act of 1996 (the "FT A"). For example, by requiring telecommunications companies to contribute in-kind facilities, the City forces these companies to subsidize IRNE's network. That enables the City to charge substantially below-market prices, Page 2 - COMPLAINT FOR DECLARATORY JUDGMENT

3 thereby using the in-kind facilities from private companies to compete unfairly against those same companies. 5. The City, again through IRNE, is also abusing its unique governmental status to enter into intergovernmental agreements ("IGAs") with other public entities, including Qwest's customers, on terms and conditions substantially below market prices. The City, through IRNE, is also acquiring in-kind facilities and below-cost access to facilities from other governmental entities through I GAs. Other providers do not have access to the IGA process in order to obtain similar facilities and access. 6. The City's systematic and anticompetitive abuse of its regulatory power and unique governmental position is prohibited by section 253 of the FTA, which forbids the City from burdening access to its rights-of-way in a manner that prohibits, or may have the effect of prohibiting, the ability of carriers to provide interstate or intrastate telecommunications service. Section 253 further requires a fair and balanced legal and regulatory environment, prohibiting actions favoring one service provider over another. The City's violation of section 253 is particularly egregious here because the municipality is abusing its unique governmental status to unfairly advantage itself in its role as a telecommunications provider. 7. Furthermore, the City is violating Oregon law and the Portland City Charter by selling telecommunications services to noninhabitants of the City. 8. Qwest seeks a declaration of its rights under the FTA, on its own behalf and to protect the competitive market for telecommunications services in Oregon. In particular, Qwest seeks a declaration that the City's abuse of its regulatory power and unique governmental status to provide IRNE with a competitive advantage over other telecommunications providers is unlawful under the FTA, and that the City's sale of telecommunications services to noninhabitants is unlawful under Oregon law and the City's Charter. Page 3 - COMPLAINT FOR DECLARATORY JUDGMENT

4 JURISDICTION AND VENUE 9. This case arises under the Constitution and laws of the United States, including, in particular, the Communications Act of 1934, 47 USC 151, et seq., as amended by the FTA; the Supremacy Clause, US Const, Art VI, c12; and 42 USC This Court has jurisdiction pursuant to 28 USC 1331, 1332 and Additionally, this Court has jurisdiction pursuant to 28 USC 2201 and 2202, as Qwest seeks a declaration that the City's abuse of its power and position to operate IRNE in an anticompetitive manner violates the Constitution and laws of the United States. This Court has jurisdiction over state law claims pursuant to 28 USC 1367(a). 10. Venue is proper in this district pursuant to 28 USC 1391(b), as the defendant resides in this district and the events giving rise to this action occurred within this district. THE PARTIES 11. Qwest is a telecommunications corporation organized and existing under the laws of the state of Colorado, with its principal place ofbusiness in Denver, Colorado. Qwest delivers high-quality telephone and broadband Internet-based data, voice and image connectivity securely and reliably to businesses, consumers and other telecommunications providers. 12. The City is a municipal corporation duly constituted under the Constitution and laws of the state of Oregon. THE FEDERAL TELECOMMUNICATIONS ACT 13. Before 1996, the telecommunications industry was regulated by industry-specific guidelines that kept certain types of companies out of other lines of business. These line-ofbusiness restrictions resulted in the creation of regulated monopolies, which operated in their own spheres, insulated from competitive forces. 14. In February 1996, Congress enacted the FTA. The FTA was designed to remove barriers to entry and to open local telecommunications markets to competition as a matter of federal law. Page 4 - COMPLAINT FOR DECLARATORY JUDGMENT

5 15. The FTA's express purpose is to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." FT A, Pub. L. No , pmbl., 110 Stat. 56 (1996). In enacting the FT A, Congress recognized that revolutionary forces are reshaping the telecommunications industry, resulting in the creation of a single medium capable of providing customers with a ''bundle" of high-speed, high-quality services, including traditional voice telephony, cable television, high-speed data transmission, Internet access and video. Congress sought to facilitate this reshaping of the telecommunications industry landscape by introducing sweeping changes that remove barriers to entry, eliminate local monopolies and stimulate fair and nondiscriminatory competition among telecommunications service providers. 16. To this end, the FTA preempted all local statutes, regulations and other legal requirements that may prohibit or have the effect of prohibiting any entity from providing telecommunications service: "No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." 47 USC 253(a). Federal courts have consistently held that local regulations imposing burdensome and discriminatory requirements on telecommunications companies are preempted under section 253(a), because such requirements have a prohibitory effect on the competitive market for telecommunications services. 17. While carving out some remaining regulatory authority for state and local governments, Congress specifically limited the extent of that authority. Congress did so to prevent local governments from imposing regulatory restrictions and burdens on telecommunications service providers that could defeat the sweeping changes introduced by the FT A. Accordingly, under the FT A, local governments are limited to exercising reasonable Page 5 - COMPLAINT FOR DECLARATORY JUDGMENT

6 management of public rights-of-way, namely regulating the physical process of installing and maintaining facilities in public rights-of-way, and to recovering actual costs for managing such access. Specifically, section 253(c) states: "Nothing in this section affects the authority of a State or local government to manage the public rights-of-way or to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way on a nondiscriminatory basis, if the compensation required is publicly disclosed by such government." 47 USC 253(c). This clause gives cities the authority to manage the manner in which telecommunications companies may install their facilities in city streets by, for example, charging fees for the review of construction plans and inspection of sites, designating particular excavation equipment to avoid safety hazards, and setting permissible construction hours. 18. Courts routinely have held that local governments violate section 253(c) when they stray beyond "traditional rights-of-way matters" and impose a "third tier" of regulation on telecommunications providers, and when they fail to regulate their rights-of-way in a competitively neutral and nondiscriminatory manner. 19. Thus, under section 253(c), cities retain limited authority to manage public rightsof-way, but are prohibited from regulating telecommunications services within their borders. Cities are also barred from seeking to generate municipal revenues through non-cost-based or the discriminatory assessment of charges on those services, lest the fundamental federal interest in promoting competitive telecommunications markets be compromised. FACTS The City's Unlawful Operation o(irne 20. The City has obtained a certificate of authority from the Oregon Public Utility Commission ("OPUC") to operate, through JRNE, as a "Competitive Local Exchange Carrier." As such, the City is now competing with Qwest and other telecommunications providers in and Page 6 - COMPLAINT FOR DECLARATORY JUDGMENT

7 beyond the city limits of Portland. See City of Portland d/b/a Integrated Regional Network Enterprise, OPUC Order No The City is abusing its regulatory authority by subsidizing IRNE with in-kind facilities and other contributions from competing telecommunications providers and other governmental entities. The City mandates such facilities and contributions from competing providers through conditions in its franchise ordinances that require telecommunications providers to give conduit, fiber and other contributions to the City in exchange for access to the City's rights-of-way. It also acquires in-kind facilities and below-cost access to facilities from other governmental entities through IGAs. Other providers cannot enter into IGAs to obtain similar facilities or access. The City then uses those facilities and other contributions to provide telecommunications services through IRNE for below-market rates. 22. IRNE is currently providing telecommunications services to the City and other governmental, quasi governmental and educational entities that reside both in and outside of the Portland city limits, including the Tri-County Metropolitan Transportation Agency, the Oregon Department of Transportation, the State of Oregon Department of Administrative Services, Multnomah County, the Multnomah Education Service District, Portland Community College, Portland State University, Portland Public Schools and the City of Gresham. Several of these entities formerly received telecommunications services from Qwest. The City is actively marketing telecommunications services through IRNE to other third parties, including Qwest' s current customers. 23. The City gives preferential treatment to IRNE. It does not impose the same rightof-way terms and conditions on IRNE that it does on other telecommunications providers. IRNE is not required to compensate the general public for IRNE's share of the cost of managing the City's rights-of-way, nor does IRNE bear the same burdens associated with right-of-way use that the City has imposed on IRNE's competitors. Furthermore, IRNE is not required to compensate Page? - COMPLAINT FOR DECLARATORY JUDGMENT

8 the City for City employees, City office space and various other City resources used in IRNE' s daily operations. 24. Under Oregon law, public agencies must award contracts for telecommunications services based on a competitive bidding process. The City is abusing its governmental status to circumvent this process and lure away other public entities as customers for IRNE, including several entities that used to be Qwest customers. The City does so by entering into IGAs with other governmental entities, which are exempt from the public bidding process. For example, the City has entered into I GAs for the acquisition of in-kind facilities, such as its I GAs with the Oregon Department of Transportation and the Tri-County Metropolitan Transportation Agency, and for the provision of services, such as its I GAs with Portland Community College and Portland Public Schools. The City alone can enter into these IGAs, thereby bypassing the competitive bidding process. The City's abuse of its position as a governmental entity to circumvent the competitive bidding process to enter into I GAs creates an uneven playing field among telecommunications providers. 25. The City's actions violate section 253 of the FTA. In particular, the City's actions have created an imbalanced telecommunications market that is neither fair and reasonable nor competitively neutral and nondiscriminatory. The City's actions are interfering with the ability of Qwest and other telecommunications companies to compete fairly with IRNE to provide telecommunications services to customers. The violations of section 253 are particularly egregious here, because the City, through IRNE, is acting as a competitor to Qwest and other telecommunications providers. 26. The City's actions also harm the public interest in telecommunications competition in the Portland metropolitan area. The City abuses its power to circumvent the public bidding process in order to give IRNE an advantage over other providers and the City exploits its monopoly control over public rights-of-way to effectively prohibit normal competition in the markets that the City serves through IRNE. Page 8 - COMPLAINT FOR DECLARATORY JUDGMENT Seattle

9 The City's Violation o(oregon Law and the Portland City Charter 27. ORS provides: "Wben authorized by its charter or act of incorporation, a city may purchase, build, own, operate and/or maintain telephone or telegraph systems within or without its boundaries, for the benefit and use of its inhabitants at cost or for profit." As such, ORS prohibits the sale of telecommunications services to third parties if not authorized by a city's charter or act of incorporation and if made to noninhabitants. Furthermore, cities are required to operate their telephone systems at cost or for a profit. 28. Section of the Portland City Charter grants the City the authority to own and operate a public utility, but limits the City to providing such services solely "for the purpose of serving the City and the people thereof for uses public and private." 29. Portland is violating this state statute and its own charter by establishing and operating IRNE to provide telecommunications services to noninhabitants of the City and by charging below-market prices that fail to recognize the costs of those services. FIRST CLAIM FOR RELIEF Violation of Section 253(a) and (c) ofthe FTA 30. Qwest alleges and incorporates herein all preceding paragraphs. 31. Article VI, clause 2, of the US Constitution, commonly known as the Supremacy Clause, provides, in relevant part, that "[t]his Constitution, and the Laws of the United States which shall be made in Pursuance thereof... shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." 32. The City's abuse of its regulatory authority and unique governmental position to favor IRNE over competing telecommunications service providers violates section 253 of the FT A. The City is exploiting its regulatory authority to acquire in-kind or below-market-price facilities through franchise requirements and IGAs that allow it to offer services to Qwest customers and others at below-market rates. It is also abusing its unique governmental position Page 9 - COMPLAINT FOR DECLARATORY JUDGMENT Seattle \4

10 by circumventing the statutorily required public bidding process to enter into I GAs to acquire facilities and to provide services. Those discriminatory actions destroy the level playing field required by section Accordingly, the City's abuse of its regulatory authority and unique governmental position to favor IRNE should also be declared unlawful and preempted, under the Supremacy Clause, by section 253 of the FTA. SECOND CLAIM FOR RELIEF Declaratory Relief 34. Qwest alleges and incorporates herein all preceding paragraphs. 35. Qwest brings this cause of action pursuant to the Declaratory Judgment Act, 28 USC 2201, 2202, to obtain a declaration of its rights with respect to the City's operation of IRNE. 36. An actual controversy exists between Qwest and the City involving substantial questions relating to the legal rights and duties of Qwest and the City within the meaning of 28 USC 2201, as to whether the City's operation of IRNE on a discriminatory and non-neutral basis is preempted by the FTA under the Supremacy Clause. The City denies such contentions. Accordingly, declaratory relief is appropriate and necessary to determine the extent of Qwest's rights and the City's duties and authority. 37. The Court has the power to adjudicate the rights of the parties with respect to this controversy and should grant declaratory relief under 28 USC THIRD CLAIM FOR RELIEF Violation of Oregon Law and the Portland City Charter 38. Qwest alleges and incorporates herein all preceding paragraphs. 39. ORS provides that a city, when authorized by its charter, may purchase, build, operate or maintain a telephone system "within or without its boundaries, for the benefit and use of its inhabitants at cost or for profit." Section of the Portland City Charter grants Page 10 - COMPLAINT FOR DECLARATORY JUDGMENT Seattle I

11 the City the authority to own and operate a public utility, but limits the City to providing such services solely "for the purpose of serving the City and the people thereof for uses public and private." 40. Through IRNE, the City is selling telecommunication services to non-inhabitants and is failing to recognize the full cost of its network. 41. Consequently, the Court should issue an Order prohibiting the City from providing services to noninhabitants. FOURTH CLAIM FOR RELIEF Violation of 42 USC Qwest alleges and incorporates herein all preceding paragraphs USC 1983 provides in relevant part that "[ e ]very person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress." 44. The City is a "person" within the meaning of 42 USC The US Constitution gives Congress the power to "regulate Commerce with foreign Nations, and among the several States." US Const, Art I, The Commerce Clause confers "rights, privileges, or immunities" within the meaning of 42 USC The City's disparate treatment ofirne imposes an incidental burden on interstate commerce. That burden clearly outweighs the benefit, if any, to the public. 48. The Fifth Amendment to the US Constitution provides, in pertinent part, that "[n]o person shall... be deprived of life, liberty, or property, without due process of law." Page 11 - COMPLAINT FOR DECLARATORY JUDGMENT Seattle

12 49. The Fourteenth Amendment to the US Constitution provides, in pertinent part, that "[n]o State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law." 50. Qwest is entitled to enjoy the rights, privileges and immunities secured to it under the Due Process Clauses of the Fifth and Fourteenth Amendments to the US Constitution. 51. Qwest has provided telecommunications services in Portland for more than 100. years. Since 1932, Qwest has had a valid License Agreement to use Portland's public rights-ofway and to provide telecommunications services in Portland. The Due Process Clause of the US Constitution prohibits the City from depriving Qwest of its vested property rights in pursuing its proper business interests, without due process of law. 52. Qwest is also entitled to enjoy the rights and privileges secured to it under the FTA, 47 USC 253, against preempted and impermissible local and state laws, regulations, and actions. 53. At all times relevant to this action, the City has acted under color of state and local law. 54. The City's disparate treatment of IRNE has deprived, and will continue to deprive, Qwest of its vested property rights without due process of law. These actions also deprived Qwest of the rights, privileges and immunities secured to it under the Commerce Clause, the Due Process Clause and the FT A. 55. As a result, Qwest will be impeded in its ability to provide telecommunications services to the public and will suffer irreparable damage to its goodwill and reputation. In addition, Qwest will lose customers and income in an unquantifiable sum as a direct and proximate result of the City's unlawful operation of IRNE. PRAYER FOR RELIEF WHEREFORE, Qwest respectfully requests that this Court issue an Order and Judgment: Page 12 - COMPLAINT FOR DECLARATORY JUDGMENT

13 (i) Declaring that the City's abuse of its regulatory authority and governmental status to require in-kind facilities for IRNE's use from other telecommunications providers operating in Portland violates section 253 of the FTA and is preempted under the Supremacy Clause of the US Constitution 1 (ii) Declaring that the City's abuse of its governmental status to circumvent the statutorily required public bidding process applicable to all other public providers of telecommunications services by entering into IGAs through IRNE for the provision of telecommunications services to other public entities violates section 253 of the FTA and is preempted under the Supremacy Clause of the US Constitution; 2 (iii) Declaring that the City's abuse of its regulatory authority and governmental status to acquire in-kind facilities and below-cost access to facilities from other governmental entities through IGAs with other public entities violates section 253 of the FTA and is preempted under the Supremacy Clause of the US Constitution; 3 (iv) Declaring that the City's abuse of its regulatory authority and governmental status to grant preferential treatment to IRNE violates section 253 of the FTA and is preempted under the Supremacy Clause of the US Constitution; 1 Qwest is not asking for damages or the disgorgement of facilities, but rather that the Court declare on a going-forward basis that the City, either on its own or operating through IRNE, cannot require in-kind facilities from other telecommunications providers. 2 Qwest is not asking the Court to invalidate any IGAs that are currently in force, but rather that the Court declare on a going-forward basis that the City, operating on its own or through IRNE, must enter into public service contracts through the same public bidding process as all other telecommunications service providers. 3 Qwest is not asking the Court to invalidate any IGAs that are currently in force, but rather that the Court declare on a going-forward basis that the City, operating on its own or through IRNE, cannot enter into public service contracts with other governmental agencies to acquire in-kind facilities or below-cost access to facilities. Page 13 - COMPLAINT FOR DECLARATORY JUDGMENT

14 (v) Declaring that the City is violating 42 USC 1983 by depriving Qwest of the rights, privileges and immunities afforded it by the Commerce Clause and the Due Process Clause of the US Constitution; (vi) Declaring that the City is violating ORS and section of the Portland City Charter by providing telecommunications services to non-inhabitants and failing to recognize the full costs of its network ; (vii) Awarding Qwest the costs, disbursements and attorneys' fees incurred in connection with this action pursuant to 42 USC 1988 and this Court's inherent equitable authority arising under Oregon common law in actions that protect the rights of others; and (viii) Granting such other relief as this Court considers just and proper. Dated this 1:_ day of September, STOEL RIVES LLP By; - -P :_ David R. Goodnight, WSBA No John H. Ridge, WSBA No Maren R. Norton, WSBA No Pro Hac Vice App. Pending Telephone: (206) Brad S. Daniels, OSB No Telephone: (503) Alex Duarte, OSB No Telephone: (503) Attorneys for Plaintiff Qwest Corporation Page 14 - COMPLAINT FOR DECLARATORY JUDGMENT