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Rutherford Electric Membership Corp. v. Time Warner Entertainment-Advance/Newhouse Partnership

Court of Appeals of North Carolina

April 7, 2015

RUTHERFORD ELECTRIC MEMBERSHIP CORPORATION, Plaintiff,
v.
TIME WARNER ENTERTAINMENT-ADVANCE/NEWHOUSE PARTNERSHIP, D/B/A TIME WARNER CABLE, and TIME WARNER CABLE SOUTHEAST, LLC, Defendants

December 4, 2014, Heard in the Court of Appeals

Rutherford County, No. 13-CVS-231.

Nelson Mullins Riley & Scarborough LLP, by Joseph W. Eason and Christopher J. Blake, for Plaintiff.

Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Reid L. Phillips; and Sheppard Mullin Richter & Hampton LLP, by Gardner F. Gillespie, Paul Werner, and J. Aaron George, for Defendant.

Womble Carlyle Sandridge & Rice, LLP, by Pressly M. Millen and Raymond M. Bennett, for amicus curiae North Carolina Association of Electric Cooperatives, Inc.

The Bussian Law Firm, PLLC, by John A. Bussian, for amicus curiae North Carolina Cable Telecommunications Association.

Judges STEELMAN and GEER concur.

OPINION

Page 769

Appeal by Plaintiff from order and opinion entered 2 May 2014 by Judge Calvin E. Murphy in the North Carolina Business

Page 770

Court.

STEPHENS, Judge.

Rutherford Electric Membership Corporation (" Rutherford" ) argues that the North Carolina Business Court erred in holding that the utility pole attachment rates it charged Time Warner Cable Entertainment-Advance/Newhouse Partnership (" TWEAN" )[1] between 2010 and 2013 were neither just nor reasonable under section 62-350 of our General Statutes. Rutherford also argues that the Business Court erred in concluding that it violated section 62-350 by unilaterally raising TWEAN's rates without negotiation during the years in dispute. After careful consideration, we hold that the Business Court did not err and we consequently affirm its order and opinion.

I. Background and Procedural History

A. Regulatory Background

For approximately 35 years, the Federal Communications Commission (" FCC" ) has regulated the pole attachment rates that certain utility companies may charge cable service providers within North Carolina and around the nation. Section 224 of the federal Pole Attachment Act of 1978 amended the Communications Act of 1934 to provide that investor-owned utilities (" IOUs" ) may only charge utility pole attachment rates that are just and reasonable, based on the utility's incremental costs incurred in providing a pole attachment service and an appropriate share of its fully allocated costs, which would exist even in the absence of any pole attachments. See 47 U.S.C. § 224 (2014). Developed pursuant to section 224's enactment, the FCC Cable Rate provides a formula for charging an attaching party a percentage of the actual, documented costs of owning and maintaining a utility pole based on the proportion of the usable space[2] on the pole occupied by the attacher. See id. § 224(d). In 1996, Congress amended section 224 to include an alternative formula called the FCC Telecom Rate, which followed a similar approach for calculating the cost of a pole but utilized a different method for allocating those costs to attachers by including both usable and unusable pole space into its calculations for the amount of space each attacher occupies. See id. § 224(e). However, in 2011, the FCC adjusted the Telecom Rate formula to produce maximum rates more closely aligned with those provided by the FCC Cable Rate.

Unlike IOUs, municipally owned utilities and non-profit electric membership corporations

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(" EMCs" ) are exempt from federal regulation by the FCC. Thus, given the absence of any comparable state legislation here in North Carolina prior to 2009, pole attachment rates went effectively unregulated for such utilities providers. Indeed, when TWEAN attempted to challenge the pole attachment rates set by a North Carolina EMC in federal court in 2007 under common law principles, the United States Court of Appeals for the Fourth Circuit flatly rejected its argument and held that, " if any regulation or compulsion is to be applied to pole-attachment agreements, it should be done by the North Carolina legislature, the North Carolina Utilities Commission, [or] the North Carolina state courts." Time Warner Entm't-Advance/Newhouse P'ship v. Carteret-Craven Elec. Membership Corp., 506 F.3d 304, 315 (4th Cir. 2007). In so holding, the Fourth Circuit set the stage for our General Assembly's enactment of N.C. Gen. Stat. § 62-350.

As enacted in 2009, section 62-350 requires that municipalities and EMCs organized under Chapter 117 of our General Statutes " shall allow any communications service provider to utilize [their] poles, ducts, and conduits at just, reasonable, and nondiscriminatory rates, terms, and conditions adopted pursuant to negotiated or adjudicated agreements." N.C. Gen. Stat. § 62-350(a) (2013). Included in the definition of " communications service provider" (" CSP" ) are those that provide " cable service over a cable system as those terms are defined in Article 42 of Chapter 66 of the General Statutes." Id. § 62-350(e). The statute further provides that:

Following receipt of a request from a communications service provider, a municipality or membership corporation shall negotiate concerning the rates, terms, and conditions for the use of or attachment to the poles, ducts, or conduits that it owns or controls. . . . Upon request, a party shall state in writing its objections to any proposed rate, terms, and conditions of the other party.

Id. § 62-350(b). However, if the parties are unable to reach an agreement " within 90 days of a request to negotiate . . . , or if either party believes in good faith that an impasse has been reached . . . , either party may bring an action in [the North Carolina Business Court] . . . , and the Business Court shall have exclusive jurisdiction over such actions." Id. § 62-350(c). In such cases, the statute provides that the Business Court shall

resolve any dispute identified in the pleadings consistent with the public interest and necessity so as to derive just and reasonable rates, terms, and conditions, taking into consideration and applying such other factors or evidence that may be presented by a party, including without limitation the rules and regulations applicable to attachments by each type of communications service provider under section 224 of the Communications Act of 1934, as amended, and [] apply any new rate adopted as a result of the action retroactively to the date immediately following the expiration of the 90-day negotiating period or initiation of the lawsuit, whichever is earlier.

Id. In the only case heretofore brought under this statute, this Court interpreted section 62-350 to " endorse[] regulatory intervention to promote just and reasonable rates" by " establish[ing] several judicially enforceable statutory rights" including " a statutory right for both [CSPs] and municipalities to establish just, reasonable, and nondiscriminatory pole attachment rates within 90 days of a request to negotiate" and " a private cause of action to enforce these rights." Time Warner Entm't Advance/Newhouse P'ship v. Town of Landis, __ N.C.App. __, __, 747 S.E.2d 610, 615-16 (2013) (citations and internal quotation marks omitted).

B. Facts and Procedural History

Rutherford is an EMC organized under Chapter 117 of our General Statutes that owns and operates an electric distribution system consisting of overhead and underground lines used to provide electric service to its members in its service territory, which covers all or portions of 10 North Carolina counties. As part of its system, Rutherford owns utility poles to which it attaches its overhead distribution lines. Rutherford also maintains " joint-use" arrangements with incumbent

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local telephone companies and electric utilities under which Rutherford typically does not pay for its use of space on the other party's poles, nor does it charge the other party for using space on its poles; instead, the joint-user pays the pole owner for any expenses associated with accommodating its facilities. In addition, Rutherford licenses the use of surplus space on its poles to CSPs and other third-party attachers.

On 5 March 1998, Rutherford and TWEAN entered into a pole attachment agreement, the terms of which largely followed Rutherford's standard third-party CSP attachment agreement and obligated TWEAN to pay an annual, per-pole rental rate of $5.25 in exchange for the right to attach to surplus space on Rutherford's poles. The agreement provided that where there was no surplus space on a pole, including sufficient safety space and ground clearance, TWEAN would create space by purchasing a new, larger pole, entirely at its own expense. Moreover, if Rutherford reclaimed space on the pole for its own attachments, TWEAN either had to move its attachment to create new safety space or, if there was insufficient space to maintain minimum requirements for ground clearance or safety space, pay to install a taller pole. In both cases, the agreement provided that Rutherford would take ownership of the new pole and TWEAN would continue paying the same rate to attach to it.

In 1999, Rutherford increased the rate it charged TWEAN to $5.50 per pole. In 2004, Rutherford exercised its option to terminate the 1998 pole attachment agreement and the parties spent the next eight years unsuccessfully attempting to reach a new agreement, while Rutherford continued to invoice TWEAN for its attachments at gradually increased rates. In 2005, the rate was $7.50 per pole; in 2006, $9.50 per pole; in 2007, $11.50 per pole; in 2008, $12.50 per pole; in 2009, $14.50 per pole; in 2010, $15.50 per pole; in 2011, $18.50 per pole; in 2012, $19.19 per pole; and in 2013, $19.65 per pole.

Prior to section 62-350's enactment, TWEAN lacked any means to challenge Rutherford's rates and thus continued to pay the amounts invoiced until 2009. Then, on 18 December 2009, TWEAN objected to Rutherford's invoiced rates and requested negotiations for the rate, terms, and conditions of a new license agreement pursuant to section 62-350. Over the next 39 months, the parties negotiated in good faith but were unable to reach an agreement. In the meantime, TWEAN refused to pay Rutherford's 2010 rate of $15.50 per pole and instead paid the 2009 rate of $14.50 per pole, subject to a true-up based on a negotiated or adjudicated rate and without prejudice to either party. In response, Rutherford threatened to demand removal of 481 TWEAN attachments, which was the number of poles equal to the amount of the outstanding balance, unless TWEAN paid the full invoiced amount for 2010. TWEAN responded by letter that Rutherford did not have the authority to unilaterally raise its rates or remove its attachments, and continued to pay $14.50 per pole, subject to true-up and without prejudice, through 2011 and 2012 while Rutherford continued to demand payment of the unpaid invoices and refused to provide TWEAN with financial data and documents that it requested in conjunction with the ongoing negotiations. In 2013, TWEAN offered to pay Rutherford's invoices at a rate of $7.50 per pole, but Rutherford objected and refused to accept any such payment. By February 2013, after more than three years of unsuccessful negotiations, the parties reached an impasse as to the maximum permissible ...


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