Rochester Didn’t Prove Its Telecom Fees Are Cost-Based, as Law Requires: Plaintiffs

Rochester, New York, enacted a new telecommunications code three years ago that imposes “excessively high fees” on telecom providers in violation of federal law, said plaintiffs Verizon, Extenet and Crown Castle in a joint memorandum of law Monday (docket 6:19-cv-06583) in U.S. District Court for Western New York in Rochester. Their opening brief in support of their motion for judgment in their favor followed a two-day consolidated bench trial in early June (see 2212200065).

The $1,500 annual fee that Rochester charges for small-cell facilities attached to city-owned poles in the public rights of way (ROW) is more than five times the $270 “presumptively reasonable rate” the FCC said “would only rarely need to be exceeded,” said the memorandum. Federal law prohibits any municipality from imposing fees on telecom providers for use of the public ROW “unless those fees are cost-based,” it said.

The plaintiffs also filed their memorandum in further support of their renewed motions in limine to exclude certain evidence from trial, plus their motion for discovery sanctions for the city’s alleged failure to preserve critical records. The court should take "appropriate action to remedy these discovery failures," said the memorandum. The city's responding brief is due Sept. 1, and the plaintiffs' reply Sept. 29.

Localities must establish that their fees are a “reasonable approximation of their objectively reasonable, actual, and direct costs that are specifically related to and caused by the deployment of telecom facilities,” said the memorandum. So-called “market-based” fees that seek to profit from the use of ROW aren't lawful, it said. “In the aggregate, they impede the deployment of telecom facilities and threaten to leave smaller and rural communities behind,” in violation of the FCC’s 2018 “barriers” order, it said.

During the bench trial, Rochester tried to meet its burden of proving the cost basis of its fees by presenting a single witness, Louie Tobias, the city’s director-telecommunications, who relied primarily on a “spreadsheet” he created in response to Verizon’s threat of litigation, said the memorandum. But the spreadsheet and Tobias’ testimony about it “are fundamentally inconsistent with the FCC’s cost-based standard and are also unreliable and inadmissible,” it said.

The city’s defense “has been fully heard,” and the plaintiffs now move for judgment in their favor under Federal Rule of Civil Procedure 52(c), said the memorandum. Under that rule, the court must weigh the evidence, and assess the credibility of Tobias, his spreadsheet and other admitted evidence, it said. The court must then decide whether the city “met its burden to establish the cost basis of its fees,” it said. Verizon, Extenet and Crown Castle's position is that Rochester “failed to meet its burden,” it said. Judgment therefore should be entered against the city, it said.

'Whitewash' Is Alleged

The record shows that when Rochester began drafting its code, it intended its fees to recover “fair market value rental compensation” for use of the ROW, said the memorandum. After the FCC “clarified” that federal law “prohibits exactly this kind of fee,” the city “simply deleted the references to rental value” and enacted the code “with the same fees anyway,” it said. Once it was threatened with litigation for violations of federal law, the city “made a frantic, after-the-fact attempt to whitewash” its newly enacted code “by creating a purported cost analysis that it hoped would justify the fees it had already adopted,” it said.

Rochester admittedly doesn’t track “its actual costs associated with telecom deployments in the ROW,” said the memorandum. Nor do city employees “track their time spent on tasks related to telecom,” it said. Thus, at trial, the city “presented no records reflecting its actual and direct costs specifically related to and caused by the deployment of telecom facilities,” it said. It produced no invoices, receipts, time sheets or accounting records, it said.

Tobias’s spreadsheet instead “purports to reflect oral conversations” he claims he had “with unidentified people in an attempt to estimate costs related to the ROW,” but not necessarily telecom deployments, said the memorandum. The specifics of those conversations are unknown because, as Tobias admitted, “he destroyed all of his notes and cannot even say exactly what guidance he gave or questions he asked,” it said.

The spreadsheet and Tobias’s methodology in creating it “failed to measure or limit itself to costs caused by the deployment of telecom facilities,” as federal law requires, said the memorandum. Tobias and the city, to the contrary, “cast the widest possible net, seeking to sweep in any and all costs that they claim might have even the most remote connection to telecom facilities,” it said.

Instead of measuring the direct, actual costs specifically related to and caused by the city’s management of telecom facilities in the ROW as required by federal law, the spreadsheet is a “hodgepodge of overhead expenses like personnel salaries and capital budgets,” said the memorandum. Those expenses “have, at most, an indirect and tangential connection to telecom facilities.” it said. Tobias admitted those costs wouldn’t be reduced even if the number of telecom deployments decreased or didn’t exist, it said. “Making things worse, these overhead expenses were then apportioned as costs related to small cell and fiber installations based on arbitrary and unverifiable calculations,” it said.

'Smell Test' Doesn't Suffice

Without any actual records to rely on, and based on his own “non-expert opinion,” Tobias assessed the reasonableness of his spreadsheet using his own “smell test,” said the memorandum. Such “over-attribution of costs and flimsy evidence” doesn’t comply with the text or intent of the law, it said.

The city not only didn’t meet its burden of proof, and the evidence it produced “was also largely inadmissible,” said the memorandum. The spreadsheet, for example, is “hearsay,” and doesn’t qualify for “the public record exception,” it said. It was created under threat of litigation, “and was apparently being revised even as this litigation was ongoing,” it said.

The spreadsheet violates “the summary document and best evidence rules” because there’s no underlying evidence in the record from which the plaintiffs or the court “can discern the accuracy and reliability of the document,” said the memorandum. Tobias’ testimony about his cost allocation methodology “also veered over the line into expert testimony” that he’s not qualified to give, and that the city “never designated him for or disclosed,” it said.

The trial revealed that Rochester “failed to preserve,” or even “actively destroyed,” relevant documents the plaintiffs requested during the litigation, said the memorandum. The “most glaring” example of the misconduct is that the city deleted all prior versions of the spreadsheet, which was last modified in September 2020 during discovery in the Verizon litigation, it said.

The court should disregard Tobias’ testimony and the spreadsheet “altogether," because they're based "predominantly on missing documents and records,” said the memorandum. The court may also draw “adverse inferences about the missing records,” and consider sanctions for the city's discovery misconduct, it said. But with or without those discovery violations, the city didn’t meet its burden of proof and judgment should be entered against it, it said.