The opinion of the court was delivered by: Judge Edgar
Plaintiff Chattanooga Gas Company ("Chattanooga Gas") is a Tennessee corporation and public utility with its principal place of business in Chattanooga, Tennessee. Chattanooga Gas brings this action for declaratory and injunctive relief under 42 U.S.C. § 1983 challenging the constitutionality of Ordinances 11175 and 11333 enacted by the City Council of defendant City of Chattanooga, Tennessee ("City") increasing the application fees charged by the City for temporary use permits to excavate and make cuts in the pavement of City streets. Chattanooga Gas contends that the fees assessed by Ordinances 11175 and 11333 breach the terms of its utility franchise agreement with the City and violate certain provisions of the United States Constitution. The complaint seeks to invoke this Court's subject matter jurisdiction under 28 U.S.C. § 1331. The City is a chartered municipality created by the Private Acts of the Tennessee General Assembly, Private Acts of 1869, Chapter 4, Section I, and is a political subdivision of the State of Tennessee located in Hamilton County.
The first and most fundamental question presented in every case brought to federal district court is whether there is subject matter jurisdiction. Caudill v. North American Media Corp., 200 F.3d 914, 916 (6th Cir. 2000); Douglas v. E.G. Baldwin & Associates, 150 F.3d 604, 606-07 (6th Cir.1998); Eagle Capital Funding, LLC v. Lowman Finishing, Inc., 2005 WL 1077726, * 2 (E.D. Tenn. March 8, 2005). Fed. R. Civ. P. 12(h)(3) provides: "Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action."
Federal courts are courts of limited jurisdiction and may exercise only those powers authorized by the United States Constitution and federal statutes enacted by Congress. It is presumed that a cause of action lies outside this limited jurisdiction. In the case at bar, the burden of overcoming the presumption and establishing that this Court has subject matter jurisdiction rests upon plaintiff Chattanooga Gas because it is the party seeking to invoke jurisdiction. Kokkonen v. Guradian Life Insurance Co. of America, 511 U.S. 375, 377 (1994); Re/Max International, Inc. v. Realty One, Inc., 271 F.3d 633, 641 (6th Cir. 2001); Fisher v. Peters, 249 F.3d 433, 444 (6th Cir.2001); Douglas, 150 F.3d at 606; Eagle Capital Funding, 2005 WL 1077726, at * 2.
This Court may not decide cases over which Congress has withdrawn subject matter jurisdiction. The Tax Injunction Act ("TIA"), 28 U.S.C. § 1341, provides: "The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State."
The threshold question before the Court is whether the fees assessed by the City in Ordinances 11175 and 11333 constitute a "tax" or a regulatory fee on Chattanooga Gas for purposes of the TIA. If the assessments in Ordinances 11175 and 11333 are properly characterized as a tax, then the TIA divests this Court of subject matter jurisdiction over the complaint of Chattanooga Gas.
If, on the other hand, the assessments are properly characterized as a mere regulatory fee, then the assessments fall outside the scope of the TIA and this Court may exercise subject matter jurisdiction.
After reviewing the record and hearing oral argument, the Court concludes that the application fees assessed by the City in Ordinances 11175 and 11333 constitute a tax imposed on Chattanooga Gas within the scope and meaning of the TIA. Moreover, Chattanooga Gas has a plain, speedy and efficient remedy available in the Tennessee state courts on its complaint. The Tennessee state courts provide an adequate judicial forum for Chattanooga Gas to present all of its claims and challenges to Ordinances 11175 and 11333. Consequently, the TIA applies and this Court lacks subject matter jurisdiction to grant any declaratory and injunctive relief demanded by Chattanooga Gas in its complaint. Pursuant to the TIA, this Court is not authorized to enjoin, suspend, restrain, or otherwise interfere with the City's assessment, levy, and collection of the tax. The complaint of Chattanooga Gas must be dismissed without prejudice pursuant to Fed. R. Civ. P. 12(h)(3) and the TIA on the ground of lack of subject matter jurisdiction.
In November 1980, the City adopted Ordinance 7746 ("franchise agreement") granting a public utility franchise to Chattanooga Gas for a term of thirty years for the purpose of constructing, operating, and maintaining a system of natural gas distribution and service within the City. The franchise agreement grants Chattanooga Gas the right and privilege to construct, operate, and maintain a system of natural gas mains, pipes and conduits in, upon, along and under the streets, alleys, avenues, bridges, and public places within the City.
Section 1 of Ordinance 7746 provides that its enactment shall not constitute any repeal or modification, express or implied, of any other City ordinance then in effect. It further provides that the City reserves the right to enact any and all such ordinances respecting Chattanooga Gas and its business "as may be authorized by law, provided that any such ordinances shall not abridge the rights and privileges granted" to Chattanooga Gas under Ordinance 7746.
Section 4 of Ordinance 7746 provides that when Chattanooga Gas cuts or digs into the streets for the purpose of installing or repairing its gas pipelines, Chattanooga Gas "shall with reasonable diligence restore such streets ... to as good state of repair and condition as the same were before disturbed by said Company and shall in all respects fully indemnify and save harmless the City from and against all damages, costs, attorney's fees, or other expenses which the City may incur by reason of such digging ...." It further provides: "All such construction work performed by [Chattanooga Gas] shall be subject to the approval of the City's Department of Public Works, which approval shall not be unreasonably withheld."
Section 8 of Ordinance 7746 provides a table of annual franchise fees that Chattanooga Gas is obligated to pay to the City. The franchise fees increase incrementally for each year of the thirty-year franchise. For example, the annual franchise fee for 2001 is $295,000, the franchise fee for 2002 is $302, 500, the franchise fee for 2003 is $310,000, and the franchise fee for 2004 is $317,500. The franchise fees are due and payable on a quarterly basis.
Prior to and at the time of City's adoption of Ordinance 7746 (franchise agreement) in November 1980, the City had in place a street excavation permit requirement with accompanying fees. Chattanooga Gas paid those permit fees from November 1980 until the City adopted Ordinance 11175 on September 11, 2001.
On July 14, 1981, the City's then legislative body, the Chattanooga Board of Commissioners, adopted Ordinance 7871 which amended the City Code by adding a new Section 2-275. It provided that the City Inspection Department shall collect an administrative charge [application fee] of $3.50 for the issuance of each permit. After Ordinance 7871 was adopted by the City, Chattanooga Gas complied with it and regularly paid the application for permit fees to the City every time Chattanooga Gas sought to excavate and make cuts in the City streets.
On December 27, 1988, the City adopted Ordinance 9099 which amended and replaced Sections 32-61 through 32-69 of the Chattanooga City Code regulating the excavation and restoration of streets. Section 32-62, as amended by Ordinance 9099, provided it was unlawful for any person to excavate or to tunnel under any street without first obtaining a permit from the Supervisor of the City Inspection Department. Section 32-64, as amended by Ordinance 9099, provided that the application for a permit shall be accompanied by a $15 fee for a utility cut in street pavement or boring perpendicular to the center line, and five cents ($0.05) per lineal foot for cuts in right-of-way parallel to center line with a $5 minimum. After Ordinance 9099 was adopted by the City, Chattanooga Gas complied with it and regularly paid the application fees to the City every time Chattanooga Gas sought a permit to excavate and make cuts in the City streets.
On September 11, 2001, the City adopted Ordinance 11175 amending City Code, Part II, Chapter 32, Section 32-64, to increase and establish new application fees for permits to excavate and make cuts in streets. Ordinance 11175 deleted the former Section 32-64 and replaced it with a revised Section 32-64 which provided as follows. Each application shall be accompanied by a fee of $300 "for a utility to cut in street pavement or boring perpendicular to center line" It also requires an application fee of $1.00 per lineal foot for cuts in right-of-way parallel to centerline with a $300 minimum. For driveway or curb cuts, the application fee is $100. Chattanooga Gas objects to Ordinance 11175 and has refused to pay the increased fees. Chattanooga Gas has offset the increased charges for application fees under Ordinance 11175 by deducting them from the utility franchise fees Chattanooga Gas pays to the City under the franchise agreement.
On October 15, 2002, the City adopted Ordinance 11333 amending the City Code, Part II, Chapter 32, Section 32-64. Ordinance 11333, which is currently in effect, provides that each application for a permit shall be accompanied by a fee of $250 for transverse cuts in pavement, and a permit fee of $1.00 per foot for longitudinal cuts in pavement with a $250 minimum fee. Chattanooga Gas objects to Ordinance 11333 and refuses to pay these new application fees. Chattanooga Gas has continued to unilaterally offset these application fees by deducting them from the utility franchise fees it pays to the City under the franchise agreement.
The City contends that it adopted Ordinances 11175 and 11333 increasing the application fees for street cut permits in an effort to recoup the City's actual costs of administration in regulating and managing the excavation of its streets. The City submits the affidavits of Daisy Madison ("Madison") and William C. McDonald ("McDonald"). [Doc. No. 26]. Madison is employed by the City as Deputy Administrator of Finance and Administration. In her affidavit, Madison states that all of the street cut permit fees paid by Chattanooga Gas are placed into the City's general budget. In other words, the application fees charged by the City for street cut ...