Supreme Court Reverses in Nixon v. Missouri

March 24, 2004. The U.S. Supreme Court issued its opinion [PDF] in Nixon v. Missouri Municipal League, a case regarding 47 U.S.C. § 253(a) and state statutes that prohibit political subdivisions from offering telecommunications services. It reversed the U.S. Court of Appeals (8thCir).

Summary. Missouri passed a state statute that bans local governments in Missouri from offering telecommunications services. The local governments, represented by the Missouri Municipal League, want the Federal Communications Commission (FCC) to preempt this statute, under Section 253, which provides that states cannot ban "any entity" from providing telecommunications services. It has always been clear that Section 253 means that states cannot bar any company from providing telecommunications services. The question is, does Section 253 also include local governments. The FCC said no. The 8th Circuit said yes. The Supreme Court said no.

Of course, this does not mean that states must bar local governments from providing telecommunications services. This opinion only stands for the proposition that states may bar local governments from providing telecommunications services.

The consequence is that in states, such as Missouri, that bar local governments from providing telecommunications services, the commercial providers will not face competition from local governments. These entities may have competitive advantages over the local exchange carriers, such as public subsidies, as well as regulatory authority. On the other hand, in some more remote and rural areas, local governments might be the only entities prepared to provide certain services -- particularly broadband services.

Background. Jeremiah Nixon is a party to this litigation in his capacity as the Attorney General of the state of Missouri. Missouri passed a law that says that Missouri's political subdivisions, such as towns and counties, cannot offer telecommunications services.

The incumbent local exchange carrier (ILEC), Southwestern Bell, does not want to compete against service providers that are subsidized and favored by the local governments. It supports the Missouri legislation. The Missouri Municipal League (MML), which represents political subdivisions in Missouri, opposes the statute, and wants it preempted by federal law.

The Federal Communications Commission (FCC), which has statutory authority to preempt this statute, sides with the state of Missouri and Southwestern Bell as a matter of statutory construction. It also argues that government entities cannot be both regulators and competitors. The FCC issued an order in which it declined to preempt the statute.

The Statutes. Missouri Statutes, Section 392.410(7), provides that, subject to certain enumerated exceptions, "No political subdivision of this state shall provide or offer for sale, either to the public or to a telecommunications provider, a telecommunications service or telecommunications facility used to provide a telecommunications service for which a certificate of service authority is required pursuant to this section."

The Communication Act, at 47 U.S.C. § 253(a), provides that "No State or local statute or regulation, or other State or local legal requirement, may prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." (Emphasis added.)

FCC Proceedings. Various municipalities and municipal organizations filed a petition with the FCC asking that it preempt the Missouri statute for being in violation of § 253(a).

The FCC denied the request to preempt by Memorandum Opinion and Order [18 pages in PDF] released on January 12, 2001. This is CC Docket No. 98-122.

The FCC wrote that "We do not preempt the enforcement of HB 620 to the extent that it limits the ability of municipalities or municipally owned utilities, acting as political subdivisions of the state of Missouri, from providing telecommunications services or facilities. As we found in the Texas Preemption Order, the term ``any entity´´ in section 253(a) of the Act was not intended to include political subdivisions of the state, but rather appears to prohibit restrictions on market entry that apply to independent entities subject to state regulation."

The FCC added that "municipal entry into telecommunications could raise issues regarding taxpayer protection from economic risks of entry, as well as questions concerning possible regulatory bias when a municipality acts as both a regulator and a competitor."

Court of Appeals. The municipal entities then filed a petition for review with the U.S. Court of Appeals (8thCir). The Appeals Court vacated the FCC order, and remanded. It reasoned in its opinion [11 pages in PDF] that "The dispute hinges on the meaning of the phrase ``any entity´´ in § 253 of the Act. More precisely, do the words ``any entity´´ plainly include municipalities and so satisfy the Gregory plain statement rule? We hold that they do." This opinion is also published at 299 F.3d 949.

The Supreme Court granted certiorari on June 23, 2003. The three consolidated petitions are Nixon v. Missouri Municipal League (S.C. No. 02-1238 ), FCC v. Missouri Municipal League (S.C. No. 02-1386), and Southwestern Bell v. Missouri Municipal League (S.C. No. 02-1405). See, Order List [12 pages in PDF] at page 2. The Supreme Court heard oral argument on January 12, 2004.

Supreme Court. The Supreme Court reversed. Justice Souter wrote the opinion of the Court. He was joined by Rehnquist, O'Connor, Kennedy, Ginsburg and Breyer. Justice Scalia wrote a concurring opinion, in which Justice Thomas joined. Justice Stevens wrote a solo dissent.

Souter concluded that § 253 "authorizes preemption of state and local laws and regulations expressly or effectively ``prohibiting the ability of any entity´´ to provide telecommunications services. The question is whether the class of entities includes the State's own subdivisions, so as to affect the power of States and localities to restrict their own (or their political inferiors') delivery of such services. We hold it does not." (Parentheses in original.)

That is, the Missouri statute is valid. Local governmental entities in the state of Missouri cannot now provide telecommunications services.

He reasoned that "§253 would not work like a normal preemptive statute if it applied to a governmental unit. It would often accomplish nothing, it would treat States differently depending on the formal structures of their laws authorizing municipalities to function, and it would hold out no promise of a national consistency. We think it farfetched that Congress meant §253 to start down such a road in the absence of any clearer signal than the phrase ``ability of any entity.´´"

Reaction. Ed Merlis, of the U.S. Telecommunications Association (USTA), an interest group that represents ILECs, stated in a release that "This is a victory for consumers and for our economy. Free markets are far more capable of delivering the many benefits of American innovation to our communities than heavy-handed government intervention."

"With its many tax and regulatory advantages, the government should not be in the business of competing directly with private enterprise. Studies show that such an approach ultimately hinders the evolution of a healthy marketplace that can attract real investment and competition", said Merlis.

Jim Baller of the Baller Herbst Law Group, which represents the Missouri Municipal League, expressed disappointment. He wrote in a release that "the Court made clear that the decision is not a ruling on the merits of municipal telecommunications. The Court merely observed that municipalities have a ``respectable position´´ on this, that there are arguments on the other side ..."

Baller also wrote that "As to the future, we note that only a handful of states currently have barriers to municipal entry, and we hope that other states will take to heart the FCC's admonition that such barriers are unwise, unnecessary to achieve any legitimate state interest, and contrary to the purposes of the Telecommunications Act. Some states have already reversed or relaxed barriers enacted in the past, and we hope that this trend will continue as well."

"We also hope that state legislators everywhere will realize that, without the involvement of local governments, our Nation cannot achieve our national goal of rapid deployment of truly advanced and affordable telecommunications services and capabilities to all Americans, including those in rural and high cost areas", said Baller.

Baller Herbst has collected numerous documents from the FCC proceeding, the 8th Circuit proceeding, and the Supreme Court proceeding. See, Baller Herbst web page titled "Missouri Preemption Litigation".

See also, related stories titled "8th Circuit Rules States Cannot Bar Municipalities From Providing Telecom Services" in TLJ Daily E-Mail Alert No. 492, August 15, 2002; "Supreme Court Grants Certiorari in Nixon v. Missouri Municipal League" in TLJ Daily E-Mail Alert No. 687, June 25, 2003; and "Briefs Filed With Supreme Court in Nixon v. Missouri Municipal League" in TLJ Daily E-Mail Alert No. 776, November 11, 2003.