Kowalski v. City of Livonia , 267 Mich. App. 517 ( 2005 )

705 N.W.2d 161 (2005) 267 Mich. App. 517

Kathy KOWALSKI, David Barnaby, Fred Hyatts, Maurice Curran, and Linda Curran, Plaintiffs-Appellants,
v.
CITY OF LIVONIA, Defendant-Appellee.

Docket No. 255623.

Court of Appeals of Michigan.

Submitted July 12, 2005, at Lansing. Decided July 26, 2005, at 9:20 a.m. Released for Publication October 26, 2005.

Charfoos & Christensen, P.C. (by David R. Parker), Detroit, for the plaintiff.

Sean P. Kavanagh, City Attorney, and Cathryn K. White, Chief Assistant City Attorney, and Cummings, McClorey, Davis & Acho, PLC (by T. Joseph Seward), Livonia, Livonia, for the defendant.

Before: O'CONNELL, P.J., and SCHUETTE and BORRELLO, JJ.

O'CONNELL, P.J.

Plaintiffs^[1] appeal as of right the trial court's order granting defendant summary disposition based on its holdings that plaintiffs lacked standing, that the federal Cable Communications Policy Act, 47 USC 521 et seq., preempted the Headlee Amendment, and that the cable "franchise fees" did not constitute a "tax" for purposes of the § 31 of the Headlee Amendment. Because we find the third issue dispositive, we do not reach the others. In this case, we conclude that the "franchise fees" do not constitute a tax and, therefore, we affirm the lower court decision.

This case arose as part of a statewide challenge against several municipalities that impose five percent "franchise fees" on local cable carriers as a condition to their operation. See, e.g., Morgan v. City of Grand Rapids, 267 Mich.App 513, 705 N.W.2d 387 (2005). The source of the challenge was not the providers who paid the five percent charge directly, however, but the cable subscribers who sought to strike down the charge as a new local tax that was unlawful without voter approval. Const 1963, art 9, § 31. Unlike the other cases, defendant immediately filed a motion for summary disposition, rather than an answer with affirmative defenses, and did not assert the issue of the statute of limitations.

Plaintiffs argue that the trial court erred when it determined that the charge was a "fee" rather than a "tax" for purposes of § 31. Although we would categorize the charge as the contract price for a municipally owned commodity, we agree with the trial court that the charge does not fit within the definition of a "tax" in this case. We review de novo a trial court's decision to grant summary disposition. Maiden v. Rozwood, 461 Mich. 109, 118, 597 N.W.2d 817 (1999).

Because the Headlee Amendment only proscribes the imposition of new "taxes," defendant did not violate the amendment if it can establish that the charge here is a "user fee" or some other type of exaction that does not qualify as a "tax." Bolt v. City of Lansing, 459 Mich. 152, 158-159, 587 N.W.2d 264 (1998). The only types of exactions recognized in Bolt were assessments, taxes, and user fees. Although we would recognize a fourth type, contract price, we need not construct any new legal framework in this case because plaintiffs have failed to demonstrate that defendant charged more than a "fee" in the year preceding their lawsuit.

In Bolt, our Supreme Court provided the following three criteria for evaluating whether a charge qualified as a "fee" or a "tax." First, "a user-fee must serve a regulatory purpose rather than a revenue-raising purpose." Id. at 161, 587 N.W.2d 264. Second, the user fee "must be proportionate to the necessary costs of the service." Id. at 161-162, 587 N.W.2d 264. Third, a user fee is generally voluntary in nature. Id. at 162, 587 N.W.2d 264.

Addressing the criteria in reverse order, plaintiffs accurately and unreservedly admit that the cable "franchise fees" are voluntary. This is true whether viewed from the perspective of the subscriber or the supplier, because each pays the charge in exchange for a service: the provider pays the city for its valuable franchise and the subscriber, in turn, pays the supplier for the privilege of receiving cable programming. Therefore, the "franchise fee" is a voluntary payment and consideration in exchange for a commodity.^[2]

Next, the budget information for defendant reflected that the franchise fees were insufficient from 2001 to 2003 to support its cable expenditures, and that defendant ran the cable fund at an annual loss. Nevertheless, plaintiffs argued that the surplus in the cable fund of more than $1 million in 2001 demonstrated that defendant illegally collected an excess "disguised tax" at some point in the fund's history. However, given the fact that a plaintiff may only claim a Headlee violation within one year after its occurrence, MCL 600.308a(3), it would distort the purpose of the limitations period if we scanned the entire life of the cable fund searching for a surplus year. Besides, plaintiffs have failed to present any evidence that the surplus resulted from the collection of franchise fees or that, in light of the current deficits, those fees will not eventually fund cable services. Therefore, plaintiffs failed to demonstrate that "franchise fee" revenue was disproportionately high compared to the expense associated with cable services during the one-year period before they filed suit.

Finally, although plaintiffs also claim that the franchise fees generated $30,416 for Livonia's general fund, the budget summary, annual budgets, and balance sheets they submitted do not appear to support the claim. Furthermore, in light of the cable fund's other expenses exceeding $700,000 and "franchise fee" revenue of more than $600,000, the transfer of $30,416 into the general fund does little to tip the scales in favor of finding that the five percent charge constitutes a "tax." See Bolt, supra at 167 n. 16, 587 N.W.2d 264 (stating that the three criteria should be considered together rather than in isolation).

Affirmed.

BORRELLO, J., I concur in the result only.

SCHUETTE, J. (concurring in the result only).

I would affirm the decision of the trial court. In contrast to the analysis of my distinguished colleague Judge Peter D. O'Connell, I believe this Court's decision in Morgan v. City of Grand Rapids, 267 Mich.App 513, 705 N.W.2d 387 (2005), is dispositive of this case.

The one-year statute of limitations, MCL 600.308a(3), as explained in Taxpayers Allied for Constitutional Taxation v. Wayne Co., 450 Mich. 119, 124-125 n. 7, 537 N.W.2d 596 (1995), applies to the plaintiffs' cause of action in this matter.

NOTES

[1] The named plaintiffs were never granted class certification below, so the term "plaintiffs" refers to them exclusively, and, because there is no class, our holding affects all the claims and disposes of the entire suit.

[2] We would hold that such a contract price for a governmentally owned commodity could never qualify as a "tax" even if the government sets the contract price high enough to glean a substantial profit and generate revenue to replenish its general fund or refund money to its citizenry. We would apply the contract exception in those cases where the commodity is generally obtainable on the open market, the government is acting in its proprietary role, the benefit received by the government is part of a bargained exchange, and the price imposed has de minimis effect on commerce outside the government's jurisdiction. Jones v. Detroit Water Comm'rs., 34 Mich. 273, 275 (1876) (holding that "water rates paid by consumers are in no sense taxes, but are nothing more than the price paid for water as a commodity, just as similar rates are payable to gas companies, or to private water works, for their supply of gas or water"); see also Coleman v. Kootsillas, 456 Mich. 615, 575 N.W.2d 527 (1998) (holding that operation of a landfill by a city was intended to raise revenue and fit within the city's proprietary function); also compare City of Dallas v. Federal Communications Comm., 118 F.3d 393, 397-398 (C.A.5, 1997), and City of St. Louis v. Western Union Telegraph Co., 148 U.S. 92, 97-100, 13 S.Ct. 485, 37 L.Ed. 380 (1893) (each holding that use of rights-of-way was a kind of rent), with Hawarden v. U.S. West Communications, Inc., 590 N.W.2d 504, 509 (Iowa, 1999), and AT & T v. Arlington Hts., 156 Ill.2d 399, 407-408, 189 Ill.Dec. 723, 620 N.E.2d 1040 (1993) (holding that "rent" charged intermunicipal wire-service providers for their use of a municipality's rights-of-way were cost prohibitive).