New Orleans City v. BellSouth Telecommunications, Inc.

Filing 198

ORDER & REASONS - IT IS ORDERED that BellSouth owes unjust enrichment damages to the City in the amount of $5,119,101.73, based upon the amounts that would have been due had the City adopted the LMA Agreement, with a credit to BellSouth for the amount of discount in services it has provided to the City since the cessation of the 2001 Settlement Agreement forward. IT IS FURTHER ORDERED that documentation and calculation of this discount are to be filed by BellSouth within 10 days of this Ord er & Reasons. IT IS FURTHER ORDERED that similar payments should be paid for subsequent years, unless the rights and obligations of the parties change so as to no longer require such payments. There being no further claims to resolve, IT IS FURTHER ORDERED that this case is dismissed with prejudice. Signed by Judge Eldon E. Fallon on 6/6/11. (dno, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

CITY OF NEW ORLEANS

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VERSUS
BELLSOUTH TELECOMMUNICATIONS,
INC.

CIVIL ACTION
NO. 09-151
SECTION "L"(5)

ORDER & REASONS
Before the Court is the issue of proper measurement of damages in the above captioned
case. The Court previously presided over a bench trial, issuing rulings on the merits of the case.
See (R. Doc. 192). Upon finding damages are warranted under the doctrine of unjust
enrichment, the Court directed the parties to file supplemental briefing on unjust enrichment and
the calculation of damages under this methodology. See id. The Court has received and
reviewed these briefs, as well as considered the applicable facts and law, and is now prepared to
rule on the issue at hand.
I.

BACKGROUND1
As mentioned, the Court presided over a bench trial in this case to resolve a long standing

dispute between the plaintiff, City of New Orleans (“City”) and defendant, BellSouth
Telecommunications, Inc. (“BellSouth”), regarding compensation allegedly owed by BellSouth
to the City for BellSouth’s use of the City’s rights-of-way to provide telecommunications
services. See id. The Court issued Findings of Fact & Conclusions of Law resolving the dispute,

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A detailed factual and procedural history can be found in the Court’s Findings of Fact &
Conclusions of Law. (R. Doc. 192). The abbreviations found therein are undoubtably familiar
to the parties and will be used for practical purposes in the present Order & Reasons.
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except for the issue of damages. See id. As to damages, the Court concluded that the
appropriate measure of damages was unjust enrichment, but that based upon the evidence it was
unable to completely and accurately calculate these damages. Specifically, the Court stated,
“[s]ince no agreed upon method of payment has been in place from 2006, the doctrine of unjust
enrichment must be used to define the extent of BellSouth’s obligation to pay the City for the
benefits it has been receiving post-2006 which originally derived from the 1906 Agreement and
were later recognized in the 2001 Settlement Agreement.” Id. The Court went on to find “that
one method for measuring the amounts owed for the unjust enrichment in the present matter is
the percentage method used in the 1906 Agreement. Since such a method is linked to the profits
of the City, it more accurately reflects the value of the benefit or enrichment BellSouth has
received.” Id.
The evidence is clear that BellSouth is and has been receiving substantial monetary
benefits from its use of the City’s rights-of-way. Last year, its parent company, AT&T, Inc., was
ranked number seven on the list of Fortune 500 companies, see Fortune 500, CNN Money (June
6, 2011, 11:03 a.m.), http://money.cnn.com/magazines/fortune500/2010/full-list/ , and according
to the parties' own calculations, Bellsouth made somewhere between $125-129 million from its
business in New Orleans, see (R. Docs. 193-7, 194), while for that same year, BellSouth only
paid $376,886.52 to the City. See (R. Doc. 192). This is patently unfair. Unjust enrichment is a
method of remedying this unfairness. The issue now before the Court is how to properly
calculate the damages owed by BellSouth to the City under the doctrine of unjust enrichment.
II.

SUPPLEMENTAL BRIEFING
A.

The City & Council

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The City filed a Supplemental Memorandum (R. Doc. 194), to which the New Orleans
City Council joins, see (R. Doc. 195), seeking unjust enrichment damages based upon threepercent of all gross revenues of BellSouth, excluding, as required by law, revenues from long
distance services, internet services, wireless services, and emergency services. The City
calculates three-percent of these gross revenues to be $11,393,362.16 for the years 2007 to 2010,
ranging between approximately $2.6 and $3.1 million per year. Because the City did not have
information available for the year 2010, it used the same data from 2009 for that year, with the
reservation that this amount can be added to or refunded in part once the actual figures are
determined. With regard to payments post-2010 the City suggests using a similar formula.
B.

BellSouth

BellSouth also filed a Supplemental Memorandum, raising a number of objections to the
payment of damages for unjust enrichment or under any other concept. (R. Doc. 193). First,
BellSouth argues that it owes no damages because the 2001 Settlement Agreement terminated
the 1906 Agreement entirely, leaving no three-percent compensation to base an unjust
enrichment damages calculation upon. According to BellSouth, it is entitled to use the City’s
rights-of-way without charge in perpetuity. Alternatively, in the event the Court resurrects the
1906 Agreement for the damages, BellSouth seeks a credit for the difference between the
payments it has made to the City under the 2001 Settlement Agreement and the amount it would
have paid the City had the 1906 Agreement not been terminated. BellSouth contends that the
City should not be permitted to recover under unjust enrichment because it was the City’s own
fault or negligence which prevented the enactment of the LMA Agreement. BellSouth opposes
the increase of its payments to the City on the basis that such violates federal law because its

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chief competitor, Cox Communications, pays nothing for use of the City’s rights-of-way for the
provision of telephone service. Finally, BellSouth claims that a number of equitable
considerations weigh against an award of damages in the City’s favor.
III.

LAW & ANALYSIS
The Louisiana doctrine of “enrichment without cause,” or as it is commonly known,

unjust enrichment, is codified by Louisiana Civil Code article 2298 which provides,
A person who has been enriched without cause at the expense of another person is
bound to compensate that person. The term ‘without cause’ is used in this context to
exclude cases in which the enrichment results from a valid juridical act or the law. The
remedy declared here is subsidiary and shall not be available if the law provides another
remedy for the impoverishment or declares a contrary rule.
The amount of compensation due is measured by the extent to which one has been
enriched or the other has been impoverished, whichever is less.
The extent of the enrichment or impoverishment is measured as of the time the suit is
brought or, according to the circumstances, as of the time the judgment is rendered.
The Court previously concluded in its Findings of Fact & Conclusions of Law that the elements
of unjust enrichment have been satisfied in the present matter. See (R. Doc. 192 ¶ 124). The
Court now reaffirms this conclusion to the extent that unjust enrichment applies in favor of the
City.
To flesh out the concept of unjust enrichment in order to assess the amount of damages it
is helpful to consider past agreements between the parties. Over the course of over 100 years,
two agreements present some guidance: the 1906 Agreement and the LMA Agreement. Upon
further examination of the applicable law and facts, as well as the briefs submitted by the parties,
the Court finds that instead of basing unjust enrichment damages upon the compensation
required by the 1906 Agreement, the compensation required by the LMA Agreement provides

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the proper method for measuring these damages. The payments that would have been made by
BellSouth to the City under the LMA Agreement represent “the extent to which [BellSouth] has
been enriched or the [City] has been impoverished, whichever is less.” La. Civ. Code art. 2298.
The parties bargained for and contemplated that the LMA Agreement would be a potential
method, along with the Simplified Tax Legislation, for compensation paid by BellSouth to the
City after its direct payments required by the 2001 Settlement Agreement terminated in 2005.
See (Joint Ex. 12)(2001 Settlement Agreement); (Ponder Test. Vol. II, 235:12-20, 241:22242:16, 243:25-244:1, 274:5-10, Aug. 31, 2010). Because evidence was not presented on the
amount or method of compensation that would be payable under the Simplified Tax Legislation,
and this Legislation was never passed, see (Abbott Test. Vol. II 299:19-20); (Zeno Dep. 27:710), the Court finds that the compensation due under the LMA Agreement provides the best
basis for measuring unjust enrichment damages. See Fogleman v. Cajun Bag & Supply Co., 931177 (La. App. 3 Cir. 6/15/94); 638 So. 2d 706, 710 (recognizing unjust enrichment is an equitybased calculation, depending upon the circumstances, including relevant history). Notably,
BellSouth offered to allow the City to enter into the LMA Agreement past the deadline required
for doing so by the 2001 Settlement Agreement, the very time period at issue here. See (R. Doc.
193, p. 15)(citing R. Doc. 47-1). Although the Court previously held that because the condition
lapsed, the LMA Agreement could not be retroactively enacted, this holding is not subverted by
basing unjust enrichment damages on the compensation method provided by the LMA
Agreement. See e.g. Howell v. Rhoades, 547 So. 2d 1087, 1090 (La. App. 1 Cir. 1989)(“Plaintiff
is entitled to the profit he would have made had a valid contract existed.”). Furthermore, the
award of unjust enrichment damages is consistent with the underlying equitable concerns of the

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doctrine, see Corbello v. Iowa Prod., 2002-0826 (La. 2/25/03); 850 So. 2d 686, 713, given that
“every other city in the State of Louisiana” has a similar LMA Agreement, (Ponder Test. Vol. II
248:16-17); see (Thompson Test. Vol. II 322:8-13), and other utilities which use the City’s
rights-of-way pay millions of dollars annually to the City. See (Foster Test. Vol. I, 125:10126:17). Accordingly, based upon the figures presented by BellSouth’s own tax accountant, the
terms of the LMA Agreement require BellSouth to compensate the City for the following unjust
enrichment damages: $1,324,954.28 for 2007; $1,376,895.64 for 2008; $1,244,888.92 for 2009;
and $1,172,362.88 for 2010, for a total of $5,119,101.73. See (R. Doc. 193-7)(Ex. G). For
subsequent years, BellSouth would continue to pay the City pursuant to the terms of the LMA
Agreement, unless the rights and obligations of the parties change so as to no longer require such
payments.
As summarized above, BellSouth raises a number of arguments opposing unjust
enrichment damages, each of which the Court now addresses. First, BellSouth argues that if the
Court requires it to pay damages based upon the 1906 Agreement, it is entitled to a
$14,116,270.69 credit for overpayments made pursuant to the 2001 Settlement Agreement
because these payments constituted a “buyout” of future obligations under the 1906 Agreement.
See (R. Doc. 193). However, the Court is not relying upon the 1906 Agreement to provide the
basis for calculating the unjust enrichment damages, nor is it resurrecting this Agreement; thus,
BellSouth’s argument is moot. To the extent BellSouth seeks a credit for any future obligations,
the Court disagrees on the basis of the language of the 2001 Settlement Agreement, as well as
relevant testimony, which demonstrate that the parties contemplated future payments by
BellSouth even after its direct payment obligations under the 2001 Settlement Agreement

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ceased. See (Joint Ex. 12)(2001 Settlement Agreement); (Ponder Test. Vol. II, 235:12-20,
241:22-242:16, 243:25-244:1, 274:5-10).
Second, BellSouth argues that the City should not be able to recover unjust enrichment
damages because the City’s “impoverishment” is due to its own negligence or fault in failing to
timely enter the LMA Agreement. See (R. Doc. 193, pp. 14-17). The Court recognizes that
impoverishment on the part of the plaintiff is an essential element of Article 2298, as well as this
Article’s jurisprudential predecessors. The sources cited by BellSouth in support of its
impoverishment argument similarly provide that a plaintiff cannot recover for unjust enrichment
if the impoverishment is due to the plaintiff’s fault or negligence, or is the result of actions
undertaken at his or her own risk. See Quilio & Assoc., Inc. v. Plaquemines Parish Gov’t, 20050803, pp. 12-13 (La. App. 4 Cir. 5/10/06); 931 So. 2d 1129, 1137-38; Gray v. McCormick, 941282, pp. 13-14 (La. App. 3 Cir. 10/18/95); 663 So. 2d 480, 487; Charrier v. Bell, 496 So. 2d
601, 606-07 (La. App. 1 Cir. 1986), writ denied, 498 So. 2d 753 (La. 1986); Brignac v. Boisdore,
288 So. 2d 31, 35 n.2 (La. 1974); Conrad Meyer, IV, Comment, Actio De In Rem Verso in
Louisiana: Minyard v. Curtis Products, Inc., 43 Tul. L. Rev. 263, 286 (1969).
However, these sources rely on a law review article written over 25 years before the
enactment of Article 2298 and which relied entirely upon French case law regarding actio de in
rem verso, the prototype for Louisiana’s unjust enrichment. See Meyer supra. According to this
article, impoverishment for the French actio de in rem verso is vitiated by a plaintiff’s tortious
behavior, as well as by “action taken in ‘[the plaintiff’s] own interest and at his own risk.’” Id.
This article made its way into Louisiana jurisprudence as dicta in a footnote in the Louisiana
Supreme Court case Brignac v. Bolsdore, 288 So. 2d 31, 35 n.2 (La. 1974), to which the lower

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courts subsequently took notice and applied to deny unjust enrichment to plaintiffs who
conducted improvements on property that was not their own. See e.g. Charrier, 496 So. 2d at
606-07; Gray, 663 So. 2d at 487-88. Notably, this definition of impoverishment did not make its
way into the Code. See La. Civ. Code art. 2298. While the Revision Comments generally
recognize that Article 2298 “accords with civilian doctrine and jurisprudence,” see id., revision
cmt. (a), there is no indication in either the language of the article or the comments that the
Louisiana Legislature intended to create the exceptions to the impoverishment element of unjust
enrichment suggested by BellSouth. Rather, the Revision Comments simply define
impoverishment as “when [] patrimonial assets diminish or [] liabilities increase.” See id.,
revision cmt. (b).
Under Louisiana law, when faced with an inconsistency between what the jurisprudence
says on a legal doctrine and that of the Code language, the Court is to follow the Code. As the
Fifth Circuit recognizes, “[b]ecause Louisiana stands alone among the 50 states as a hybrid Civil
Law/common law jurisdiction, its situation is unique: The State’s constitution, its codes and its
statutes, are the primary sources of law, without stare decisis precedential effect.” In re Orso,
283 F.3d 686, 695 (5th Cir. 2002); accord Delta Chem. Corp. v. Lynch, 2007-0431 (La. App. 4
Cir. 2/27/08); 979 So. 2d 579, 588 (“[B]ecause of Louisiana’s civilian tradition, this court must
begin every legal analysis by examining primary sources of law, consisting of the constitution,
codes, and statutes; jurisprudence, even when it arises to the level of jurisprudence constante, is
a secondary law source. Judicial decisions are not intended to be an authoritative source of law,
and, thus, the civilian tradition does not recognize the doctrine of stare decisis.”). Although
Louisiana has inherited its civilian tradition largely in part from France, courts are not to apply

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French law in place of Louisiana law. See Penn Bridge Co. v. City of New Orleans, 222 F. 737,
741-42 (5th Cir. 1915)(refusing to follow the decision of a French court on the basis that such is
not authoritative over a diversity jurisdiction case applying Louisiana law.). Instead, a court is to
apply Louisiana law as written if it is clear and unambiguous. La. Civ. Code art. 9. Louisiana
courts are reluctant to apply pre-statute jurisprudence, particularly dicta, to a case when a clear
and unambiguous statute is in effect. See e.g. Aucoin v. Rochel, 2008-1180, p.11 (La. App. 1
Cir. 12/23/08); 5 So. 2d 197, 203; Domite v. Imperial Trading Co., Inc., 94-16 pp.6-7 (La. App.
3 Cir. 8/3/94); 641 So. 2d 715, 719-20.
Guided by the foregoing, the Court finds BellSouth’s argument unavailing, and instead
relies upon the clear and unambiguous language of article 2298 to conclude that impoverishment
has occurred in the present matter since the City’s “patrimonial assets [have] diminish[ed]” due
to BellSouth’s continued use of the City’s rights-of-way without paying compensation to the
City. The Louisiana Legislature could have included in Article 2298 the French law on action
de in rem verso impoverishment, but did not do so; thus, the Court relies upon the more limited
definition of impoverishment that was actually codified. Even if the Court were to apply the
French law on impoverishment, the facts of the present matter are distinguishable from those
cases in which courts found impoverishment vitiated; the City has not acted tortiously, nor has it
acted similar to a usufructuary who makes improvements on property he occupies.
Third, BellSouth argues that if it is required to pay the City unjust enrichment damages
for amounts past-owed, it is unable to pass-through these costs to its customers, constituting a
confiscation of property in violation of the Fifth and Fourteenth Amendments of the United
States Constitution, as well as Article I, Sections 2 and 4 of the Louisiana Constitution. See (R.

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Doc. 193, pp. 15-16). BellSouth claims that it is entitled to such a “pass-through” pursuant to
Louisiana Revised Statute § 33:4510, as well as pursuant to the terms of the 2001 Settlement, but
that the provisions of public utility law, including the prohibition against retroactive ratemaking, “cast doubt” on its ability to recover charges for past time periods from current
customers, resulting in the alleged constitutional violations. See id. However, as mentioned
above, the Court is not retroactively enacting the LMA Agreement; thus, the provision of the
2001 Settlement Agreement which requires payments pursuant to the LMA Agreement be
subject to the pass-through provisions of Louisiana Revised Statute § 33:4510, see (Joint Ex.
12), is not violated by the present Order & Reasons. Furthermore, BellSouth fails to cite any
specific “provisions of public utility law” which prevent passing-through past-owed costs, see
id., nor does the plain language of Section 4510 contain such a prohibition. See La. Rev. Stat. §
33:4510. For these reasons, as well as BellSouth’s failure to support its constitutional argument
with any legal basis, other than citing constitutional articles, see (R. Doc. 193, p. 44); (R. Doc.
47-1, p. 24), the Court finds no unconstitutional confiscation of property will occur by the
imposition of unjust enrichment damages. This conclusion is further supported by the fact
BellSouth has on previous occasions paid to the City sums representing past-amounts due
without constitutional ramifications. See e.g. (Joint Exs. 10, 11)(Partial Compromise and Mutual
Agreement for Credit Payment); (Ex. 12 ¶ 3.5)(2001 Settlement Agreement).
Fourth, BellSouth argues that increasing its payments to the City violates the federal
Telecommunications Act of 1996 (“FTA”) on the basis that such payments would provide its
telecommunications competitor, Cox Communications, who does not pay a franchise fee for its
telecommunications use, with a competitive advantage. See (R. Doc. 193). BellSouth cites in

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support, 47 U.S.C. § 253(c) which provides,
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.
In the Fifth Circuit there is no private, enforceable right under the FTA. See Sw. Bell Tel., LP v.
City of Houston, 529 F.3d 257 (5th Cir. 2008). Nonetheless, “a party may bring a claim under
the Supremacy Clause alleging a local enactment is preempted even if the federal law at issue
does not create a private right of action.” Id. at 262. To determine whether a local regulation is
preempted under the FTA, the Court is to first consider whether under subsection (a) the local
regulation “may prohibit or have the effect of prohibiting the ability of any entity to provide any
interstate or intrastate telecommunications services.” 47 U.S.C. § 253; see id. If the regulation
is found to be prohibitive, the Court is to determine whether it may stand under the “safe harbor”
provisions, one being subsection (c) relied upon by BellSouth. See id.
Turning to subsection (a), whether the imposition of the unjust enrichment payments on
BellSouth “may prohibit or have the effect of prohibiting the ability of” BellSouth to provide
telecommunications services, the Court finds no such prohibition. Since the Fifth Circuit has not
directly addressed the meaning of subsection (a) and the statute itself contains no defining
language, the Court looks to the recent and well-grounded interpretations espoused by the Eighth
and Ninth Circuits. These Circuits identically conclude that pursuant to the FTA, “‘a plaintiff
suing a municipality under section 253(a) must show actual or effective prohibition, rather than
the mere possibility of prohibition.’” Sprint Telephony PCS, L.P. v. Cty. of San Diego, 543 F.3d
571, 578 (9th Cir. 2008)(quoting Level 3 Commc’n, LLC v. City of St. Louis, 477 F.3d 528, 532

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(8th Cir. 2007))(emphasis added). Notably, this interpretation is consistent with that of the
Federal Communications Commission. See id. (citing In re Cal. Payphone Ass’n, 12 F.C.C.R.
14191, 14209 (1997)).
Based upon this interpretation of the FTA, the Court finds BellSouth will not be
prohibited from providing its telecommunications services due to its obligation to pay unjust
enrichment damages to the City. BellSouth has utilized the City’s rights-of-way for over 100
years and continues to do so without any threat of prohibition, unless perhaps it fails to pay the
appropriate compensation due therefor. See (Joint Exs. 1, 12). Over the lengthy course of its use
of these rights-of-way, BellSouth has at times paid more and less as compared to the damages
required here, the amount of which has had no prohibitive effect on its provision of services. See
e.g. (Joint Exs. 1, 12). As the Sixth Circuit has recognized, a municipality’s assessment of a fee
for franchise rights, and the franchisee’s rights being conditioned on the payment of this fee
“cannot ‘be described as a prohibition within the meaning of section 253(a),’” as opposed to a
municipality’s withholding consent to franchise. TCG Detroit v. City of Dearborn, 206 F.3d
618, 624 (6th Cir. 2000)(quoting AT&T Commc’n of the Sw., Inc. v. City of Austin, 975 F.Supp.
928, 939 (W.D. Tex. 1997)). BellSouth previously agreed to pay the City the exact amounts the
Court is now requiring it to pay for unjust enrichment damages. See (Joint Ex. 12). Curiously,
under BellSouth’s argument, the payments it currently makes pursuant to the 1984 Concession
Agreement, see (R. Doc. 192, pp. 13-14), would violate the FTA, as well as the previous
payments it has made since Cox or any other competitors have entered the telecommunications
market, yet it does not and has not raised a similar challenge to these payments. It is on these
bases the Court finds that the imposition of unjust enrichment damages does not actually or

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effectively prohibit BellSouth from providing its telecommunications services.
Fifth and finally, BellSouth asks that the Court weigh other equitable considerations in
formulating its damages ruling, including the City’s general benefit from BellSouth’s services in
the City, the discounted phone service it provides to the City, and that public rights-of-way
belong to the public, not the City. The Court acknowledges these considerations, but finds that
such also have to be considered alongside the evidence demonstrating that the right granted to
BellSouth to use the City’s rights-of-way reaps BellSouth substantial profits, BellSouth pays
compensation similar to that required here to other cities in Louisiana, and other utilities
operating in the City pay more compensation to the City than BellSouth currently does. Based
on all these considerations the Court finds that BellSouth should be entitled to a credit for the
discounted phone service it provides to the City currently, in the future, and dating back to the
cessation of the 2001 Settlement Agreement payments. While there was testimony at the trial
regarding these discounts, see (Trammel Test. Vol. I 185-194), it is not clear the exact amount of
the discount for the relevant time periods. Without a credit for these discounts, in effect the City
would be receiving an uncompensated-for benefit, much akin to that at issue here.
IV.

CONCLUSION
For the foregoing reasons, IT IS ORDERED that BellSouth owes unjust enrichment

damages to the City in the amount of $5,119,101.73, based upon the amounts that would have
been due had the City adopted the LMA Agreement, with a credit to BellSouth for the amount of
discount in services it has provided to the City since the cessation of the 2001 Settlement
Agreement forward. IT IS FURTHER ORDERED that documentation and calculation of this
discount are to be filed by BellSouth within 10 days of this Order & Reasons. IT IS FURTHER

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ORDERED that similar payments should be paid for subsequent years, unless the rights and
obligations of the parties change so as to no longer require such payments. There being no
further claims to resolve, IT IS FURTHER ORDERED that this case is dismissed with prejudice.

New Orleans, Louisiana, this 6th day of June, 2011.

________________________________
U.S. District Judge

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