City Failed To Set Out Criteria On Which It Based Its Decision On Historic Structure

 Facts and Procedure: St. Louis City Ordinance 67175 designates portions of the Benton Park neighborhood as a Local Historic District, sets out the boundaries of the Historic District, and provides for a development plan for the district. Ordinance 64832 establishes Preservation Review Districts, and designates certain portions of the City as such districts. The Benton Park Historic District is a Preservation Review District, which governs application, review, and approval of demolition permits for structures located within Preservation Review Districts. More broadly, it seeks to identify and preserve the City’s cultural resources, and sets forth criteria nearly identical for evaluating applications for demolition permits.

Nighbert owns the property at 3243 Indiana in the Benton Park Historic District, and owns and resides on the adjoining property. Nighbert applied to the City’s Cultural Resources Office (“CRO”) for a permit that would allow her to demolish the building located at 3243 Indiana (“the building”), a single-family brick home built in 1905. Nighbert planned to demolish the building and use the lot as a side yard for her home. The CRO denied the application for a demolition permit.

Nighbert appealed to the City’s Preservation Board, which held an evidentiary hearing on the record. The Board upheld the CRO’s denial of the demolition permit application, finding that the building is a “Merit building under Ordinance #64832,” and a “contributing resource to the Benton Park National Register District and the Benton Park Local Historic District.” Nighbert sought judicial review in circuit court, which affirmed the Board’s decision denying the permit, finding that the decision was supported by substantial evidence, did not violate the provisions of any law, and was neither arbitrary nor an abuse of discretion. Nighbert appealed to the Eastern District.

Analysis: Nighbert argued that the Board failed to issue findings of fact and conclusions of law as required by Section 536.150 which requires “a concise statement of the findings on which the agency bases its order.”  In order “to conduct a proper judicial review, the agency is required to issue a written decision containing specific findings of fact and conclusions of law about contested issues.”  The eight criteria in the Ordinance are as follows:

“(A) approved redevelopment plans; (B) architectural quality and merit classification of the structure; (C) condition of the structure, specifically whether an exterior inspection reveals it to be sound; D)  the neighborhood effect and potential for reuse, including a consideration of the economic hardship that the present owner of the structure may experience if the demolition permit is denied; (E)  urban design, including the integrity of the existing block face and the impact of the proposed demolition on the integrity, rhythm, balance, and density of the block; (F)  proposed subsequent construction, including whether a proposal to create vacant land by the demolition in question is appropriate on that particular site, within that specific block; (G)  commonly controlled property; and (H)  accessory structures.”

While the Board set out in detail the evidence the Board considered, the reviewing court could not identify and make essential findings of fact regarding its application of the eight criteria set forth in Ordinance; therefore, the record was inadequate in order for a reviewing court to conduct meaningful review.

Case remanded to the circuit court to direct the Board to make specific findings and conclusions indicating application of the eight criteria in Ordinance 64832 on which it based its decision to deny Nighbert a demolition permit and in sufficient detail to allow judicial review. Nighbert vs. City of St. louis Preservation Board of the City of St. Louis, (ED110496, 12/20/22)

Comment Howard: The ordinances required a lot of detail, making this a lot of work. The details protect the property owners and puts the City at risk if attention to extreme detail is not used.

City Did Not Err In Denying Conditional Use Permit Because Ordinance Reserved Authority For The City To Deny Any Request For A CUP

Facts and Procedure: QuikTrip applied for a Conditional Use Permit (CUP) from the City of Creve Coeur (City). Section 405.1070 of the City’s Code governs CUPs. QuikTrip’s application sought to develop a new gas station and convenience store. QuikTrip noted the location was in a well-travelled area and would serve those driving in this area. The City’s staff notified QuikTrip that its application was incomplete and provided a list of items it needed to supplement. QuikTrip worked with the City’s staff, ensuring its application was compliant and conformed to the City’s criteria. The City’s Director of Community Development recommended the City issue the CUP to QuikTrip.

A bill seeking approval of QuikTrip’s CUP was introduced before the City Council. After the presentation in support of the CUP and hearing from residents who opposed the CUP, the Council unanimously denied QuikTrip’s application.

The Property Owners filed an application for judicial review in circuit court. Pursuant to Section 536.150, as a non-contested case, the circuit court conducted a trial de novo. After the trial, the circuit court entered its judgment, finding the City’s ordinances required the City to issue the CUP. The circuit court found, there was competent and substantial evidence supporting the six standards in the City’s zoning code, and the City’s refusal to issue the CUP was unlawful, unreasonable, arbitrary, capricious. The circuit court then issued a writ of mandamus, directing the City to issue the CUP.

The City appealed to the Missouri Supreme Court asserting the circuit court properly created the factual record at the trial de novo but then substituted its discretion for that of the City Council. Additionally, the City argued the circuit court erred in issuing the writ of mandamus because the circuit court exceeded its authority and went beyond the scope of relief, since the City ordinance preserves to the City the discretionary authority in issuing a CUP.

Analysis: The Supreme Court first examined the standard for review for a non-contested case, under Section 536,150.1. This allows the circuit court to conduct a trial de novo to develop its own record and determine facts. The circuit court then is tasked with determining whether the agency decision, “in view of the facts as they appear to the court, is unconstitutional, unlawful, unreasonable, arbitrary, or capricious or involves an abuse of discretion.” However, the circuit court is prohibited by case law from “substituting its discretion for discretion legally vested in such administrative officer or body.”

The Supreme Court found that the circuit court ignored the City ordinance, which states: “the City reserves full authority to deny any request for a conditional use.” Under the ordinance the City retained the discretion to deny the CUP. Therefore, the circuit court erred when it made its own independent decision regarding issuance of the CUP because it cannot substitute it judgment for the city council but should resolve the issue as though it was deciding as though it was the city council. Big Olive & Graeser v. City of Creve Coeur, (SC99619, 12/20/22)

Sovereign Immunity Protects State Agency From Punitive Damages

City of Harrisonville did not state a claim against the Board of Trustees of the Mo Petroleum Storage Tank Insurance Fund for 8 million punitive damages because the Board was a state agency protected by sovereign immunity.   City of Harrisonville v.  Board of Trustees of the Mo Petroleum Storage Tank Insurance Fund, (SC99273, 12/20/22)

Sunshine Law Violations Net Attorney Fee Award of $200k+ 

Statutes, allowing an award of “all costs and reasonable attorney fees” for knowing violations of open records laws, include amounts required to pursue such an award. A reasonable amount does not depend on how many counts a plaintiff win, because all work may relate to all counts since, they are interrelated. The rules of professional conduct provide guidance in determining a reasonable amount and the circuit court’s award did not constitute an abuse of discretion. “[T]he core facts and legal theories of [plaintiff]’s claims were intertwined and this finding by the [circuit] court does not ‘shock [our] sense of justice,’ especially in light of the trial court’s consideration of the ‘character of services rendered in duration, zeal, and ability and the value of them according to custom, place, and circumstance.” The Court of Appeals modifies the circuit court’s judgment to restrict liability to the entity that knowingly committed the violations. 
Integra Healthcare, Inc., d/b/a Integrity Home Care, et al. vs. Missouri State Board of Mediation, et al.   (WD84919,11/15/22)       

Bid Protest Denied Because Of Improper Contact With Bid Official

Facts and Procedures: The Office of Administration for the Department of Revenue (OA) issued a Request for Proposals (RFP) for operation of the Troy license office. Under the RFP, vendors could earn up to 205 total evaluation points, split between several evaluation criteria and bidding preferences, including up to 24 points for proximity points and up to eight points for customer service experience. The contract was to be awarded to the vendor with the highest total evaluation score.

Proximity points were based on the distance of the vendor’s principal place of business from the current Troy license office as measured by Google Maps. A principal place of business within five miles of the license office would be given the full 24 points, with fewer points given as the distance increased up to 100 miles, over which no points would be given.

Six vendors, including the Troy Chamber of Commerce and LO Management, submitted proposals in response to the RFP. In its proposal LO Management requested proximity points, listing 491 West Wood Street as the address of its principal place of business. LO Management did not include a copy of the commercial lease with its proposal but stated that a copy of the lease was available upon request. LO Management also requested customer service experience points.

Two days after LO Management submitted its proposal, Rachel South, the Executive Director for the Troy Chamber of Commerce, emailed the buyer and the office of OA’s Commissioner notifying them that LO Management’s principal place of business address was “nothing but a fake address, empty lot at best.” South copied her email to several other people, including State Senator Jeanie Riddle; Mary Cotton, Riddle’s assistant; and State Representative Randy Pietzman. Riddle’s office contacted DOR about the Troy license office and the bidding process.

In scoring LO Management’s proposal, the DOR evaluation committee gave LO Management 24 proximity points based on the address of 491 West Wood Street for its principal place of business. The committee gave LO Management zero points for customer service experience. LO Management’s overall point total was almost 20 points higher than the point total of the next highest vendor, which was Troy Chamber of Commerce.

Senator Riddle began contacting the office of Sarah Steelman, Director of OA. Steelman’s executive assistant sent an email to Steelman advising her, “Sen. Riddle called yesterday and today regarding fee office contracts. She said that the contract is supposed to go into effect tomorrow. It is her understanding that it is in OA’s court. She would like for you to call her about it. She has thoughts to share.” Steelman’s office was aware that Senator Riddle was calling about the Troy license office. Steelman talked to Riddle, who expressed concern that LO Management’s principal place of business address was a vacant lot.

According to the Director of the Motor Vehicle and Driver Licensing Division, there was no reason for Senator Riddle, or anyone else, to be aware that an award was about to be made, because that information should have been kept confidential until the award was actually made. Furthermore, he believed it was improper for the Troy Chamber of Commerce to be communicating with DOR instead of the buyer, and it was improper for the Troy Chamber of Commerce to use a state official to contact DOR on its behalf.

Nevertheless, in response to Riddle’s contact, Steelman suggested to Ken Zeller, then DOR’s Director, that the physical address of the bids be checked to ensure the addresses were accurate. DOR checked Google Maps, contacted the Lincoln County Assessor, and sent an employee to 491 West Wood Street. Each confirmed that the address was a vacant lot. DOR did not contact LO Management as part of its investigation. DOR did not check the physical addresses of any of the other proposals submitted for the Troy license office.

Following DOR’s investigation into LO Management’s address, the DOR evaluation committee completed a new evaluation report. The committee gave LO Management zero proximity points on the basis that the location of its principal place of business “is a vacant lot.” The committee also changed LO Management’s customer service experience rating to award it one point.

As a result of the revised scoring, the Troy Chamber of Commerce received an overall evaluation score that was 1.5 points higher than LO Management’s score. Based on this information OA awarded the contract to the Troy Chamber of Commerce.

LO Management subsequently filed a late bid protest with OA, asserting that it should have received 24 proximity points because its listing of the incorrect address for its principal place of business was “due to an unfortunate misunderstanding, outside LO Management’s control.” OA denied LO Management’s bid protest. LO Management and Koester subsequently filed a petition for declaratory judgment and injunctive relief in Cole County Circuit Court challenging OA’s denial of its protest.

A trial was held and the circuit court then ruled in LO Management and Koester’s favor on all counts, concluding that OA acted arbitrarily, capriciously, and unlawfully in awarding the contract to the Troy Chamber of Commerce and that the contract award was unlawful and void. OA then appealed to the Western District.

Analysis:

Failure to Exhaust Administrative Remedies – The state specifications provided that: “…a bid protest must be submitted in writing to the director or designee and received by the division within ten (10) days after the date of the award.” In addition, the protest must include, a “detailed statement describing the grounds for the protest.” It further provided that the director will review the protest and “will only issue a determination on the issues asserted in the protest.”

The Western District noted that LO Management failed to file a timely protest of the award, within ten days after the award as required by law. LO Management contended that it was entitled to review of the award of the contract under Section 536.150 as a non-contested case and that the state was required as a matter of law to adopt a rule under law in order to award proximity points, which it had failed to do; therefor, there was no legal basis to award proximity points. The Western District rejected this argument concluding that state rule making power did not require the OA to adopt a rule because the rule applied only “as may be necessary,” giving the state the “discretion” as to whether or not to adopt a rule.

In addition, the Western District noted that requiring exhaustion of remedies serves a useful purpose because it preserves “the efficiency in the relationships between agencies and the courts” and allows the agency’s not only to develop a factual record, but also to address issues within its purview and expertise.

” Exhaustion is generally required as a matter of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review.”

Taxpayer standing – David Koester, one of the owners joined in the lawsuit as a taxpayer. The Western District held that Koester did not have standing as a taxpayer because his interest was a general interest and he was not directly impacted by the expenditure of taxpayer funds. Koster was no different from the public because the operating expense would be incurred no matter who was awarded the contract.

Improper Contact by Bidder with OA – In this case, the bid specifications provided that: “Vendors and their agents may not contact any other state employee regarding any of these matters during the solicitation and evaluation process. Inappropriate contacts are grounds for suspension and/or exclusion from specific procurements. Vendors and their agents who have questions regarding this matter should contact the buyer of record.

The Troy Chamber of Commerce initiated contact with the OA by causing its local State Senator to contact Sarah Steelman the Director of OA based on the erroneous information generated by a Goggle coding error showing that the location of the LO office was an empty lot, when in fact there was a building on the lot. OA checked the address using erroneous Goggle coding information, without contacting LO and used this to revise the bidding scores making LO the second lowest bidder.

The Western District reversed in part and affirmed in part the trial court decision by holding that the trial court erred in finding the rules for awarding the bid were unlawfully promulgated and the attorney fees should have been awarded.  However, the Western District affirmed  actions taken by the OA in awarding the bid to Troy Chamber were arbitrary and capricious and not supported by competent and substantial evidence, on the grounds that the actions by the Troy Chamber of Commerce constituted improper conduct as set forth in the specifications.  LO Management, LLC v. Office of Administration, (WD84956, 12/20/22).

Comment Howard: This is the first case I have seen that disqualifies a bidder for improper contacts with officials making the bid determination. Also the time to file notice of appeal was just ten days making it very short, putting the protester behind the 8 ball when the  appeal time was not satisfied.

In Case of First Impression Western District Holds That Email Constitutes Notice Of Decision For Purpose Of Administrative Appeal

Facts and Procedure: On March 11, 2019, Williams filed his Declaration of Intent to Be a Write-In Candidate for the Office of Mayor for the City of Kinloch (City) with the St. Louis County Election Board (County Election Board). Along with the Declaration, Williams signed a Missouri Department of Revenue Form 5120, or a Candidate’s Affidavit of Tax Payments and Bonding Requirements. Pursuant to Section 115.306.2(2), by signing and submitting the form, Williams “declare[d] under penalties of perjury that [he was] not currently aware of any delinquency in the filing or payment of any . . . personal property taxes . . ., as stated on [his] declaration of candidacy.”

After Williams was elected Mayor of the City the board of alderman impeached Williams. He appealed to the circuit court, which invalidated the impeachment. The City appealed to the Eastern District

Analysis – The sole question on appeal was whether or not Williams filed his appeal within 30 days from the notice of the decision to impeach. Section 536.090 chapter requires, “Immediately upon deciding any contested case the agency shall give written notice of its decision by delivering or mailing such notice to each party, or his attorney of record, and shall upon request furnish him with a copy of the decision, order, and findings of fact and conclusions of law.

The question presented on appeal was: Did the email notice given by Kinloch to Williams lawyer constitute notice by mail under Section 536.090? Since there was no statutory definition of what constituted mailing the Eastern District first analyzed the dictionary meaning of the word, mail concluding that it was too broad. Because the word “mail” was a technical word used in a legal context it then examined the meaning of the word “mail” in Black’s Law dictionary concluding that the email delivery of the notice clearly fell within the definition.  

“Tellingly, among the legal definitions of “mail” in Black’s Law Dictionary is “[o]ne or more written or oral messages sent electronically (e.g., through e-mail or voicemail).” MAIL, Black’s Law Dictionary (11th ed. 2019). Black’s defines “delivery” as the “formal act of voluntarily transferring something; esp., the act of bringing goods, letters, etc. to a particular person or place.” DELIVERY, id. Thus, Black’s definition of “mail” explicitly embraces email, while its definition of “delivery,” like the standard definitions in Webster’s Third, is broad enough to include email. And, of course, Section 536.110.1 refers to “mailing or delivery” in the disjunctive, meaning either will do.”

Reinforcing this conclusion was the fact that Rule 43.01 “…provides that service may be made upon attorneys of represented parties by “electronic mail” to the “electronic addresses” that attorneys are required to include in the signature blocks of their pleadings. Rule 43.01(d) elaborates that service by electronic mail generally is complete upon transmission.” Williams v. City of Kinloch, (ED110298, 12/13/22)

Comment: This is a case of first impression, making this a very important decision. My initial reaction was that this seems like a big step and that the notice ought to be more formal, but the opinion seems well founded. There is now a need to carefully monitor your emails or you might miss a filing deadline. Yikes!

Western District Holds That The Right To Collective Bargaining Is A Fundamental Right Protected By Strict Scrutiny

Facts and Procedures: MOCOA was established in 2000 as a non-profit corporation to promote the interests and welfare of all corrections officers in Missouri by advocating for favorable legislation, mitigating hazards of employment, improving working conditions, and raising the social standing of its members. Only corrections officers employed by the DOC were eligible for full membership, however the MOCOA Board of Directors was empowered to pass a resolution allowing auxiliary membership to other persons who actively supported the goals of MOCOA on account of family affiliation, work history, or other reasons.

Because 25 retirees became auxiliary members to MOCOA the OA refused to recognize MOCOA as a union under the definitions set forth in the CSR (Regulations) resulting in a refusal to engage in collective bargaining and deduction of union dues by the Office of Administration (OA). OA argued that MOCOA was not an employee association because it was not a “group of state employees” since the inclusion of twenty-five retirees made it a group of both state and non-state employees under the state definition in the Regulations. OA also argued that although MOCOA initially began receiving dues through payroll deduction as an employee association in 2000, it ceased being an employee association when it was recognized as a labor union for Corrections Officers I and II in 2004, following its union election.

After OA refused to collect dues for MOCOA members it sued in Cole County circuit court, obtaining a judgment against the state, which appealed to the Western District.

Analysis – The Western District reasoned that under the plain and ordinary meaning of the definitions in the regulations a group of state employees does not require the group to be composed exclusively of state employees in order to be an employee association. Here, MOCOA was receiving dues from roughly 1,300 DOC state employees at the time OA terminated payroll deduction compared to the twenty-five retirees who were admitted as auxiliary members who were not full members of MOCOA, could not vote for directors, paid a reduced fee directly to MOCOA, and used their auxiliary membership for social and insurance purposes. The Western District reasoned that the addition of 25 auxiliary members of non-state employees in a lower-tier of membership as a basis to disqualify the entire 1,300 member group from classification as an employee association would be an absurd result and contrary to the plain meaning of the regulation. The Court also rejected OA’s “slippery slope” argument that interpreting employee association as the trial court did will lead to employee associations being diluted by hundreds of non-state employees as auxiliary members. A reasonable interpretation of the regulation recognizes that the overall composition of MOCOA’s members as state employees satisfies the regulatory requirement that an employee association be a group of state employees.

In addition, the Western District noted that there was nothing in the regulations prohibiting a group from being both a labor union and an employee association nor did the language make the types of groups mutually exclusive or require a group to select only one such designation. Furthermore, the regulations provided that “dues” could be deducted from labor unions with an existing labor agreement or from employee associations.

The Western District also found that the decision to discontinue the deduction of union dues was arbitrary and capricious.   In OA’s letter to MOCOA on December 9, 2019, OA explained that DOC employees would no longer be able to deduct MOCOA dues from their paycheck because “the State of Missouri employees represented by MOCOA are not covered by an existing labor agreement.” The letter made no mention of MOCOA’s status, or supposed lack thereof, as an employee association. Yet, in subsequent e-mails between OA’s legal counsel and Grant, OA inquired into whether MOCOA had admitted auxiliary members pursuant to MOCOA bylaws. This was the first time OA had ever asked MOCOA about its auxiliary members or any other union. After Grant informed OA that MOCOA had admitted twenty-five retirees as auxiliary members, OA stated, after it had already suspended payroll deduction, that MOCOA could not be considered an employee association for this reason. It is clear that OA did not consider MOCOA’s status as an employee association before discontinuing its payroll deduction in December 2019, and merely provided this rationale after the fact. The Court noted that the record also contained substantial evidence from which the trial court could find that OA arbitrarily inquired into MOCOA’s auxiliary membership in order to justify its prior decision to disqualify it from payroll deduction.

OA argued that the trial court erred in finding the rules violated Article I, Section 29 of the Missouri Constitution because the rules did not violate the right to collectively bargain. OA further argued that because the rules do not impinge on the right of employees to collectively bargain, this Court need not apply any level of judicial scrutiny to the court’s analysis of the rules; in the alternative, OA argued the rules are subject to rational basis review, not strict scrutiny, because collective bargaining is not a fundamental right, and the rules do not severely restrict that right.

The Western District applied the traditional two-step analysis to the equal protection claim. “The first step requires a court to identify the classification at issue to ascertain the appropriate level of scrutiny” and the second step involves applying the appropriate level of scrutiny to the facts.

The right to organize and to bargain collectively is explicit in the Missouri constitution. The Missouri constitution provides            “[E]mployees shall have the right to organize and to bargain collectively through representatives of their choosing.” As other state courts have found, when a right is explicit in the state constitution, it is a fundamental right, and government action that discriminates on the basis of exercising this right is subject to strict judicial review.

The Western District reasoned those precedents from other jurisdictions were persuasive and applied strict scrutiny. Accordingly, because the rules discriminate based on an employee association’s exercise of the fundamental right to organize and to bargain collectively, OA must show that its rules are narrowly tailored to further a compelling governmental interest.

The practical result of the rule is to give OA an unfair advantage in the negotiations by starving the labor union for dues funding during the contract negotiations process in order to incentivize the union to negotiate so it could get the state to collect union dues. OA failed to meet its burden of showing that its action was narrowly tailored to further a compelling governmental interest. Accordingly, the trial court did not err in finding that the Rules violated MOCOA’s constitutional right to organize and to bargain collectively under an equal protection analysis.

In points IV, V, and VI, OA argued the trial court erred in finding that the rules violated MOCOA’s constitutional rights to freedom of speech, freedom of association, and equal protection, respectively. In each argument, OA asserted that the rules do not violate MOCOA’s constitutional rights because the Rules merely regulate conduct by distinguishing labor unions that have collective bargaining agreements from labor unions that do not have collective bargaining agreements. OA’s misunderstands both the nature of MOCOA’s claims against OA and the trial court’s Judgment. MOCOA did not allege, and the trial court did not find, that the Rules distinguished labor unions based on whether or not they have an existing labor agreement. Rather, the trial court found that the Rules distinguish employee associations that wish to collectively bargain from employee associations that do not collectively bargain. The Rules allowed employee associations that do not collectively bargain to benefit from payroll deduction, but prohibits employee associations that do collectively bargain from receiving the benefits of payroll deduction. And because the right to organize and to bargain collectively is a fundamental right protected by the Missouri constitution, laws that discriminate on the basis of the exercise of that right are subject to strict scrutiny. Therefore, the Court upheld the trial court’s decision that the Rules violated MOCOA’s constitutional rights to freedom of speech, freedom of association, and equal protection, respectively. Missouri Corrections Officers Association v. Missouri Office of Administration, (WD84917, 12/06/22).

Comment Howard: The courts have done well to protect the right bargain collectively. As we know, strict scrutiny is an extremely high bar. The last part of the test, the least restrictive, seems to sink nearly all attempts to the bottom. 

Local Government Entities Win Huge 39 Million Dollar Class Action Verdict Against Telephone Company

Facts and Procedure: Since 1968 Winchester has imposed a license tax on businesses that supply “telephone or telephone service”.  The ordinance provides:

Pursuant to the laws of Missouri, every firm, person or corporation now or hereafter engaged in the business of supplying or furnishing telephone or telephone service in the City of Winchester, Missouri, shall pay to the said City as a license or occupational tax six percent (6%) of the gross receipts derived from such business within the said City.

Members of the class have similar ordinances.  Charter employs VoIP technology to provide telephone service to its customers in Missouri. VoIP enables real time, two-way calling between two VoIP customers or between a VoIP and a non-VoIP, traditional telephone customer over Charter’s broadband cable network. When a Charter customer places a call to another VoIP user, the sound waves created by the customer’s voice are converted into digital data packets which are then transmitted over Charter’s network to the call’s recipient whereupon the data packets are converted back to sound waves. When a Charter customer calls a traditional telephone user, the data packets are converted into electrical signals in order to transmit the voice content to a recipient over the traditional public switched telephone network or PSTN, which has been in use since the 19th century. Charter’s VoIP service is considered to be “interconnected” because Charter’s VoIP customers can make and receive telephone calls in real time with other VoIP users or with traditional PSTN users

In its advertising, Charter markets its VoIP-enabled telephone service as “Charter Phone” and provides the service through its franchised cable system over which it also delivers voice, video, and other data including cable television. Charter Phone uses a simulated dial tone, uses phone numbers, and provides features such as call forwarding, call screening, call waiting, speed dialing, repeat dialing, and three-way calling. Additionally, Charter describes its telephone service as “not an internet phone service, requiring special phones and internet connections, but as a traditional local and long-distance telephone service that makes use of the latest technology, VoIP.

The trial court found that Charter advertises Charter Phone as being “just like traditional wireline services, [and that] Charter Phone works through regular telephone jacks and phones, and provides access to 911 emergency services and directory listings.” The trial court also found that “Charter offers its customers regular telephone service that happens to be provided using a different technology [, and that] Charter considers its service functionally equivalent to that provided by traditional wire-line service providers.”

In 2000, Charter formed Charter Fiberlink to provide telephone service using VoIP to its Missouri customers. In April 2001, it received a certificate from the Missouri Public Service Commission (“the Public Service Commission” or “the PSC”) to provide basic local and interexchange telecommunications services in Missouri. In its filings with the PSC, Charter Fiberlink represented it was a competitive facilities-based provider of telephone services, that it was a telephone company, and that it provided local exchange service.

Business license taxes were not paid and Winchester instituted an action starting 10 years of litigation before the trial. In its final judgment, the trial court found in favor of the Class and ordered Charter to pay a total of $39,048,386 in damages consisting of the unpaid taxes from July 9, 2005 to December 22, 2020, pre-judgment interest, post-judgment interest, attorney’s fees, and legal expenses.

Charter appealed to the Eastern District. Charter argued that the VoIP technology to deliver telephone service, was preempted by the Telecommunications Act of 1996 of the cable Act. Charter also asserted that the trial court erred in finding that Charter Fiberlink was a “telephone company” providing “telephone service” because the relevant tax-enabling statutes and the ordinances failed to specifically include VoIP-enabled telephone service as a “telephone company” or “telephone service.”

Analysis:

Preemption – Charter argued that Congress had preempted the right to impose state and local taxes. The Eastern District noted that the Telecom Act had a tax savings provision, which specifically provides: “[N]othing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede . . . any State or local law pertaining to taxation, except as provided in §§ 622 and 653(c) of the Communications Act of 1934 and § 602 of this Act.” The Eastern District held that by including this tax savings provision, Congress demonstrated its intent that the Telecom Act did not preempt state or local authorities from imposing and collecting taxes on providers subject to the Telecom Act.

Taxes of general applicability are not franchise fees – Charter also argued that the taxes by local government were prohibited by the Cable Act. The safe harbor provision of the Cable Act authorizes “any tax, fee, or assessment” on cable operators so long as the tax, fee, or assessment is of “general applicability” and “is [not] unduly discriminatory against cable operators.” Therefore ,the Eastern District concluded that taxes, fees, or assessments are specifically excluded from the definition of a franchise fee and are allowed by the Cable Act. This provision creates a safe harbor from the Cable Act’s preemption provision, § 556(c), for state or local taxes of general applicability that do not unduly discriminate against cable operators and from the five-percent maximum franchise fee. The local taxes apply to all suppliers of telephone service, whether they are cable operators or not, where a franchise fee would apply to a specific person operating under a franchise.

Charter Fiberlink Was Telephone Company

Charter argued the trial court erred in finding that Charter Fiberlink was a “telephone company” providing “telephone service” because the relevant tax-enabling statutes and the ordinances at issue in this case failed to define the terms “telephone company,” “telephone,” or “telephone service” to specifically include VoIP-enabled telephone service.

The Eastern District held that the trial court correctly found that Charter Fiberlink was a “telephone company” that provided “telephone service” taxable at the local level pursuant to Missouri’s license-tax-enabling statutes, §§ 94.110, 94.270, 94.360, and 66.300,17.  In particularly, Section 71.610, which addresses the power of all cities and towns to impose license taxes, provides:

“No municipal corporation in this state shall have the power to impose a license tax upon any business, avocation, pursuit or calling, unless such business, avocation, pursuit or calling is specially named as taxable in the charter of such municipal corporation, or unless such power be conferred by statute.”

In rejecting Charter’s semantical argument, the Eastern District noted that Missouri law provides for a business or occupation to satisfy § 71.610’s requirement that “it is sufficient if it ‘clearly comes within the definition and meaning of the enumerated subjects or is in fact a genus of one of the named occupations.” The court concluded based on an earlier case that it did, reasoning that although the city’s code did not define those operative terms, the plain and ordinary meaning demonstrated the ordinance’s intention to cover all telephonic services, regardless of the type of technology used to provide the services. The court observed that the terms cell phone and telephone are commonly used interchangeably, and both types of devices receive and reconvert sound waves into signals that can be transmitted to remote locations.

The Court focused on two Missouri license tax-enabling statutes – § 71.610 and § 94.270. Section 71.610, which addresses the power of all cities and towns to impose license taxes, provides: “No municipal corporation in this state shall have the power to impose a license tax upon any business, avocation, pursuit or calling, unless such business, avocation, pursuit or calling is specially named as taxable in the charter of such municipal corporation, or unless such power be conferred by statute.”  Section 94.170 also specifically authorizes a tax on “telephone” companies.

Therefore, the trial court correctly found that pursuant to Missouri’s license-tax-enabling statutes, Charter Fiberlink was a “telephone company” that provided “telephone service” taxable at the local level. Collector of Winchester v. Charter Communications, (ED109513, 12/13/22)