CenturyLink Inc., as the parent company of the subsidiaries, violated New Orleans' Wireline Telecommunications Franchise Act by failing to remit the $13 million in franchise fees, interest and late fees to the city, the city told the Orleans Parish Civil District Court on Wednesday. The act requires any entity that operates a wireline telecommunications system to obtain a franchise and compensate the city for the occupation of public property and rights of way.
"For years, CenturyLink has violated its agreements with the city of New Orleans, and unjustly enriched itself by illegally operating in our city without paying the agreed-upon franchise fees," City Attorney Sunni LeBeouf said in a statement.
According to the city, CenturyLink's subsidiaries had franchise agreements with the city. Some subsidiaries are required to remit 5% of their gross receipts every quarter, and others are required to make annual payments calculated by how many linear feet of public rights of way the subsidiary's system takes up. All of the subsidiaries' franchise agreements terminated in either 2014 or 2016, the city said.
Because all the subsidiaries were required to pay franchise fees to the city in exchange for the use of public rights of way and all have failed to pay, they are in breach of their contracts, the city said.
Additionally, the city asked the court for declaratory judgment that the subsidiaries were in violation of the city's Wireline Telecommunications Franchise Act
. The city said the subsidiaries had continued to operate past their original terms as prescribed by the act and had not timely applied for renewal. The subsidiaries should also be required to remove their equipment from the city's streets, the city said, saying that it was illegal to occupy and use public property without a franchise.Because the subsidiaries continued to operate along the public rights of way without renewing their franchises and continued to profit from doing so, they were being unjustly enriched at the expense of the city, the city told the court.
The city is confident it will prevail in the case, Jonathan Rhodes, director of the Mayor's Office of Utilities, told Law360, saying the facts of the case were quite clear. While Rhodes said the city valued its partnerships with local or state-based companies like CenturyLink, which is based in Louisiana, it was clear that the company had breached its contracts with the city.
"We are certainly looking for a partnership with these companies, but we can't allow a situation where the city has become taken advantage of rather than partnered with," Rhodes said.
Rhodes noted that the office was disbanded in 2002 by then-Mayor Ray Nagin, a Democrat. Nagin was convicted in 2014 on charges of corruption. The city's current Democratic mayor, LaToya Cantrell, reestablished the office in 2018. Rhodes told Law360 that being a watchdog for issues like the payment of franchise fees was one of the office's core roles.
Franchise fee payments make up about 7% of the city's general fund revenue, and CenturyLink has some of the highest franchise fees in the city, Rhodes told Law360, saying New Orleans couldn't afford not to pay close attention to the company's obligations to the city and to franchise fees in general.
Representatives of CenturyLink did not respond to requests for comment.
A separate Louisiana parish district court ruled against CenturyLink in a similar case in January. The First Judicial District Court for Caddo Parish ruled that CenturyLink owed the city of Shreveport $6.8 million in franchise fees.
Additionally, the Missouri Supreme Court ruled in December that CenturyLink and its subsidiaries owe four Missouri cities license taxes on most of their revenue because the cities' gross receipts taxes on telephone services applied to CenturyLink's revenue. Each of the cities has an ordinance that levies an annual license tax imposed at either 5% or 6% on the gross receipts attributable to telephone services that companies offer in their jurisdictions.
Counsel information for the parties in the New Orleans case was not immediately available.
The case is City of New Orleans v. CenturyLink Inc. et al., case number 2020-4371, in the Civil District Court for the Parish of Orleans, State of Louisiana.
--Editing by Robert Rudinger.
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