Elizabeth W. Naquin v. Lafayette City-Parish Consolidated Government

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

05-1478 C/W 05-1505

BELLSOUTH TELECOMMUNICATIONS, INC.

VERSUS

THE CITY OF LAFAYETTE AND
THE LAFAYETTE PUBLIC UTILITIES AUTHORITY

CONSOLIDATED WITH

ELIZABETH W. NAQUIN AND
MATTHEW B. EASTIN, ET AL.

VERSUS

LAFAYETTE CITY-PARISH CONSOLIDATED
GOVERNMENT AND THE
LAFAYETTE PUBLIC UTILITIES AUTHORITY

*********

APPEALS FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT
PARISH OF LAFAYETTE, NOS. 05-5245, 05-5218
HONORABLE DURWOOD CONQUE, DISTRICT JUDGE
HONORABLE G. BRADFORD WARE, DISTRICT JUDGE, PRO TEMPORE

*********

JIMMIE C. PETERS
JUDGE

********

Court composed of Jimmie C. Peters, Marc T. Amy, and James T. Genovese, Judges.

REVERSED IN PART; RENDERED IN PART; DISMISSED IN PART.

Gary J. Russo
Camille Beinvenue Poche
Kyle M. Bacon
Perret Doise, A.P.L.C.
600 Jefferson Street, Suite 1600

Lafayette, Louisiana 70502-3408
Telephone: (337) 262-9000
COUNSEL FOR PLAINTIFFS/APPELLANTS:
Bellsouth Telecommunications, Inc.

Edward H. Bergin
Jones, Walker, Waechter,
Poitevant, Carrere & Denegre, L.L.P.
201 St. Charles Avenue, 49th Floor
New Orleans, Louisiana 70170
Telephone: (504) 582-8222
COUNSEL FOR PLAINTIFFS/APPELLANTS:
Bellsouth Telecommunications, Inc.

Patrick S. Ottinger
Post Office Box 4017-C
Lafayette, Louisiana 70502
Telephone: (337) 232-7232
COUNSEL FOR DEFENDANTS/APPELLEES:
City of Lafayette, Lafayette City-Parish Consolidated Government,
and Lafayette Public Utilities Authority

Stan P. Baudin
Patrick W. Pendley
Pendley Law Firm
24110 Eden Street
Plaquemine, Louisiana 70764
Telephone: (225) 687-6396
COUNSEL FOR INTERVENORS/PLAINTIFFS/APPELLANTS:
Elizabeth W. Naquin and Matthew B. Eastin, et al.

Christopher D. Shows
Pierce & Shows, A.P.L.C.
601 St. Joseph Street
Baton Rouge, Louisiana 70802
Telephone: (225) 388-9574
COUNSEL FOR INTERVENORS/PLAINTIFFS/APPELLANTS:
Elizabeth W. Naquin and Matthew B. Eastin, et al.

Andre P. LaPlace
2762 Continental Drive, Suite 103
Baton Rouge, Louisiana 70808
Telephone: (225) 924-6898
COUNSEL FOR INTERVENORS/PLAINTIFFS/APPELLANTS:
Elizabeth W. Naquin and Matthew B. Eastin, et al.

PETERS, J.

These consolidated appeals arise out of certain judgments and rulings rendered

by separate divisions of the Fifteenth Judicial District Court, Parish of Lafayette, in

two different causes. Bellsouth Telecommunications, Inc. (Bellsouth) seeks review

of the denial of its motion for judgment by the district court’s division G in docket

number 05-5245. In its motion for judgment, Bellsouth challenged the validity of the

Lafayette City-Parish Consolidated Government’s (City) bond revenue ordinance for

the development of a government-run communications network.1 In doing so,

Bellsouth sought to have the ordinance declared invalid and to have the City enjoined

from issuing the bonds authorized under the ordinance pending compliance with

applicable law. Bellsouth argued that the bond ordinance violated the cross-

subsidization provisions and single enterprise fund requirement of the Local

Government Fair Competition Act, La.R.S. 45:844.41-45:844.55 (Fair Competition

Act). The district court dismissed Bellsouth’s motion for judgment on the basis that

the bond ordinance was not in violation of the Fair Competition Act.

The City has answered Bellsouth’s appeal, requesting review of certain other

rulings of the district court. Specifically, the City contends that the district court

erred when it failed to consider proffered evidence of documents filed by Bellsouth

and the general orders that were issued by the Public Service Commission during

administrative rule-making hearings on the Fair Competition Act. The City also

asserts that the district court erroneously concluded that the Fair Competition Act

does not recognize its purported use of residual revenues from the existing utilities

system as a loan.

1
Although the Lafayette Public Utilities Authority is also a defendant in this litigation, the
issue now before this court involves only the interpretation of the ordinance enacted by the Lafayette
City-Parish Consolidated Government.

Additionally, Lafayette residents Elizabeth A. Naquin and Matthew B. Eastin

seek review of the judgment dismissing their motion for judgment in docket number

05-5218 by the district court’s division B, which appeal has been consolidated with

Bellsouth’s appeal. Naquin and Eastin sought relief similar to that requested by

Bellsouth. The district court, division B, dismissed Naquin and Eastin’s motion

based on their intervention in the Bellsouth case and the effect of the judgment

rendered by the district court in that case. On appeal, Naquin and Eastin argue that,

although they had been allowed to intervene in the Bellsouth proceedings, they were

permitted to do so only regarding the issues that had been commonly asserted by the

parties in their separate motions for judgment. Thus, they contend that the district

court’s dismissal of their motion erroneously deprived them of a hearing on issues

that were not the subject of the motion for judgment filed by Bellsouth. The City has

filed a motion to dismiss the appeal and, in the alternative, an exception of lack of

subject matter jurisdiction, both of which urge that the appeal is untimely. Naquin

and Eastin have filed a motion for an extension of time to file their appellate brief

beyond the time period proscribed by La.R.S. 13:5128, which governs challenges to

bond ordinances.

We have afforded expedited consideration to these consolidated matters

pursuant to La.R.S. 13:5128.2 For the reasons stated below, we reverse the judgment

of the district court dismissing Bellsouth’s motion for judgment and grant Bellsouth’s

request for relief by enjoining the City from issuing the bonds authorized under the

ordinance pending the City’s compliance with applicable law. We also dismiss the

2
Louisiana Revised Statutes 13:5128 requires the court of appeal to hold a hearing no later
than seven days after the appellee’s reply brief is filed with the court and to render a decision no later
than seven days following the hearing.

2

appeal of Naquin and Eastin as untimely. Otherwise, we affirm the district court

rulings in all other respects.

ISSUES

This appeal requires the determination of the following issues:

Bellsouth’s appellate issues:

(1) Does the City’s bond revenue ordinance violate the Fair
Competition Act’s cross-subsidization provisions by
proposing to use residual revenue from existing utility
services to repay bonds without an event of default?

(2) Does the City’s bond revenue ordinance violate the Fair
Competition Act by creating five funds to account for the
operation of the new communications system services
rather than creating a single enterprise fund?

The City’s appeal issues:

(1) Was Bellsouth’s challenge to the bond revenue ordinance
perempted such that the trial court lacked subject matter
jurisdiction to hear the matter?

(2) Should the trial court have considered the City’s proffered
evidence consisting of (i) two Louisiana Public Service
Commission General Orders regarding accounting rules
under the Fair Competition Act and (ii) two briefs filed by
Bellsouth in the proceedings considering the Louisiana
Public Service Commission’s rules?

(3) Did the trial court erroneously determine that under the
Fair Competition Act the City’s use of residual revenues
from existing utilities, as set forth in the bond ordinance,
does not constitute a loan?

Naquin and Eastin’s appellate issues:

(1) Is the appeal brief filed by Naquin and Eastin untimely?

(2) Did the trial court erroneously dismiss Naquin and Eastin’s
pending Motion for Judgment, without allowing for
determination of the issues that were not decided during
the Bellsouth hearing?

FACTUAL AND PROCEDURAL BACKGROUND

3

On July 16, 2005, the registered voters of the City approved the following

proposition at a special election called for that purpose:

SUMMARY: AUTHORITY FOR THE CITY OF LAFAYETTE TO
ISSUE NOT EXCEEDING $125,000,000 OF 25-YEAR REVENUE
BONDS FOR THE PURPOSE OF CONSTRUCTING, ACQUIRING,
DEVELOPING, EXTENDING AND IMPROVING A LOCAL
COMMUNICATIONS NETWORK THAT WILL OFFER
TELEPHONE, CABLE TV, HIGH-SPEED FIBER TO THE HOME
(FTTH) INTERNET AND OTHER RELATED SERVICES (THE
“COMMUNICATIONS SYSTEM”) AND, SHOULD THE CITY
DETERMINE THAT ANY BOND PROCEEDS ARE UNNECESSARY
FOR COMMUNICATIONS SYSTEM PURPOSES, FOR
REPURCHASING OR PAYING ANY SUCH BONDS AND FOR
CONSTRUCTING, ACQUIRING AND IMPROVING THE CITY’S
COMBINED WATERWORKS, ELECTRIC AND SEWER SYSTEMS
(THE “UTILITIES SYSTEM”), INCLUDING ACQUIRING THE
NECESSARY FURNITURE, FIXTURES AND EQUIPMENT IN
CONNECTION WITH ALL THE ABOVE DESCRIBED ADDITIONS
AND IMPROVEMENTS, PAYING THE COSTS OF ISSUANCE,
FUNDING A RESERVE FOR THE BONDS, AND PROVIDING
WORKING CAPITAL, SAID BONDS TO BE PAYABLE FIRST,
FROM THE NET INCOME AND REVENUES OF THE
COMMUNICATIONS SYSTEM AND SECOND, TO THE AMOUNT
NECESSARY, FROM A SECONDARY OR SUBORDINATE
PLEDGE OF THE REVENUES OF THE UTILITIES SYSTEM.

Shall the City of Lafayette, State of Louisiana (the “City”), issue its
communications system revenue bonds in an amount not exceeding One
Hundred Twenty-Five Million Dollars ($125,000,000) to run not more
than twenty-five (25) years from date of issuance to be sold at par,
premium or discount with interest at a rate or rates not exceeding nine
per centum (9%) per annum, for the purpose of constructing, acquiring,
developing, extending and improving a local communications network
that will offer telephone, cable TV, high-speed fiber to the home
(FTTH) Internet service and other related services, (the
“Communications System”) and, should the City determine that any
bond proceeds are unnecessary for Communications System purposes,
for repurchasing or paying any such bonds and for constructing,
acquiring and improving the combined waterworks plant and system,
electric power and light plant and system and sewer systems of the City
(the “Utilities System”), including acquiring the necessary furniture,
fixtures and equipment in connection with all the above described
additions and improvements, as established and set forth in the City’s
then current capital budget adopted after budget hearings held in the

4

manner contemplated by the Home Rule Charter, paying the costs of
issuance, funding a reserve for the bonds, and providing working
capital, said bonds to be payable from the net income and revenues of
the Communications System and to the amount necessary, from a
secondary or subordinate pledge of the revenues of the Utilities System?

Based on the results of the special election, the Lafayette City-Parish

Consolidated Government Council, on September 6, 2005, adopted Ordinance

Number 0-230-2005, which consists of a preamble and eleven articles and which

authorizes it to incur debt and issue revenue bonds to fund the creation and operation

of a communications system. The proposed communications system would consist

of a local network offering telephone, cable television, and high-speed internet

services as well as other unnamed communications services that might be added in

the future. The ordinance proposes to fund the communications system through the

issuance of twenty-five-year revenue bonds, not exceeding $125,000,000.00.

Specifically, Section 5 of the preamble provides as follows:

SECTION 5. The City proposes to construct, acquire, extend and
improve the Communications System and/or Utilities System[3] and
finance all or a part of the costs of the additions and improvements to
the Communications System and/or Utilities System, including
acquiring the necessary furniture, fixtures and equipment in connection
therewith, funding the Reserve Fund, and providing working capital
through the sale and issuance of not exceeding One Hundred Twenty-
Five Million Dollars ($125,000,000) of Communications System
Revenue Bonds, Series 2006 of the City (“the Bonds”)[.]

The first challenge to the bond ordinance was filed on October 6, 2005, by

Naquin and Eastin, who sued individually and on behalf of all others similarly

situated. They filed a “Motion for Judgment Pursuant to La.R.S. 13:5125,”4 which

3
“Utilities System” is defined in Section 1.1 of the ordinance as the revenue-producing public
utilities system of the City consisting of the combined waterworks plants and system, the electric
power and light plant and systems, and sewer system, including any property, rights, and interests
in such plants and systems related to their operation.
4
Louisiana Revised Statutes 13:5125 requires that a motion for judgment be filed by any
person or entity seeking to contest or enjoin the issuance of governmental bonds and sets parameters

5

was assigned to division B. The following day, Bellsouth filed a “Motion for

Judgment” in accordance with La.R.S. 13:5125, which was assigned to division G.

Bellsouth’s motion for judgment was set for hearing on November 3, 2005, while

Naquin and Eastin’s motion for judgment was set for hearing on November 14, 2005.

Naquin and Eastin’s motion contained the same challenges to the bond revenue

ordinance as Bellsouth’s motion, but their motion additionally asserted other issues

not present in Bellsouth’s motion. On October 31, 2005, Naquin and Eastin filed a

petition of intervention in Bellsouth’s action in order to take advantage of the earlier

hearing date; however, they did not voluntarily dismiss the motion that was pending

in division B. Naquin and Eastin’s intervention was permitted, but only as to those

issues commonly shared with Bellsouth.

The Bellsouth motion for judgment was heard on November 3, 2005, and the

merits of the controversy were taken under advisement. During the hearing, the

district court ruled on the exceptions of peremption and lack of subject matter

jurisdiction that had been filed by the City in opposition to Bellsouth’s motion for

judgment. The City argued in those exceptions that Bellsouth’s motion was untimely

as it was filed beyond the sixty days allowed for challenges to bond elections. The

district court orally overruled the exceptions, finding that the sixty-day window

allowed for challenging bond elections under La.Const. art. 6, § 35(A) was

inapplicable in the instant case, since the motion challenged the validity of the bond

revenue ordinance, and not the bond election. The district court also orally ruled that

because the City’s exception of lack of subject matter jurisdiction hinged on this

peremption issue, it was moot as a result of the finding that the motion for judgment

for the publication of the motion for judgment and hearing date in a newspaper published or in
circulation in the governmental area at issue.

6

was not perempted.

The district court issued written reasons for judgment and signed the judgment

on November 14, 2005. In its written reasons, the district court first addressed the

challenge to the bond ordinance that focused on the provisions seeking to repay the

bonds using not only revenue from the new communications system, but also revenue

from the City’s existing utilities system. Bellsouth and the intervenors argued that

the use of residual revenues from the utilities system to repay the bonds violated the

various cross-subsidization prohibitions set forth in the Fair Competition Act, La.R.S.

45:844.41, et seq. In addition, Bellsouth and the intervenors argued that the bond

revenue ordinance violated La.R.S. 45:844.51(A)(1) of the Fair Competition Act by

establishing five funds rather than a “single enterprise fund” to be used to account for

the services offered by the communications system.

The district court rejected both of these arguments and found that La.R.S.

45:844.52 of the Fair Competition Act provides an applicable exception that allows

local governments that own electric, water, gas, and other such utilities to pledge the

resources of those utilities to obtain the best available interest rates, terms, and

conditions for the bonds it issues. Nevertheless, Bellsouth, relying on La.Civ.Code

art. 3165, argued that the instant arrangement did not constitute a pledge under the

law, because the ordinance provided for the repayment of bonds using the funds prior

to any default occurring, as is required when assets are pledged. However, the district

court reasoned that La.Civ.Code art. 3165, which requires such a default, was

inapplicable because it addresses the pledged asset itself, and not its fruits. In other

words, the district court concluded that the revenue from the utility system, and not

the utility system itself, was the subject of the pledge and that the revenue constituted

7

the “fruits” of the utility system.

In reaching this conclusion, the district court found the City’s reliance upon

La.Civ.Code art. 3168 to be correct, since that article contemplates the pledge of

fruits and allows the creditor/pledgee access to those fruits without the necessity of

a default occurring. The district court further reasoned that, because La.Civ.Code art.

3133 defines a pledge as a contract, it logically follows that, as with all contracts, the

parties are free to contract for any lawful purpose. Accordingly, the district court

concluded that, absent any specific prohibitions in the Fair Competition Act regarding

how a pledge must operate, the bond issuer (the City) and the future bondholders

were not prohibited from agreeing to the operation of the pledge as set forth in the

bond ordinance. The district court did reject the City’s argument, however, that its

use of residual revenues from existing utilities could also be considered a loan under

the Fair Competition Act, reasoning that, because the funds are to be deposited into

a “Sinking Fund,” as opposed to a “Receipts Fund,” as is required of loans under the

Act, the residual revenues could not be considered as loans.

Regarding Bellsouth’s argument that the ordinance failed to comply with the

Fair Competition Act’s requirement that a single enterprise fund be established, the

district court found no such violation. Rather, the district court found that the City

was in compliance with this requirement, relying on the statement in Section 4 of the

ordinance preamble that promised that the fund would be set up in the future.

On November 14, 2005, the same date that the district court’s division G

rendered its judgment, Naquin and Eastin appeared in division B, seeking a hearing

on the unresolved issues remaining in their motion for judgment. However, on the

City’s oral motion, the district court dismissed Naquin and Eastin’s pending motion

8

for judgment with prejudice. The judgment provided that Naquin and Eastin were

enjoined from proceeding in accordance with the provisions of La.R.S. 13:51295

and/or La.Code Civ.P. art. 531.6

Bellsouth filed a petition for appeal on November 17, 2005, and Naquin and

Eastin filed a separate appeal on November 21, 2005. Both appeal petitions were

timely filed with the district court pursuant to La.R.S. 13:5128, which requires

appeals of suits regarding the validity of bonds to be filed within ten days of the date

on which the judgment at issue is rendered. The matters were consolidated upon

docketing by this court.

LAW AND ARGUMENT

BELLSOUTH’S APPEAL ISSUES

1. Bond Repayment Under the Fair Competition Act

The Fair Competition Act establishes the policy of the State of Louisiana with

regard to the expansion of cable television, telecommunication, and advanced

services in La.R.S. 45:844.42. With regard to local government’s involvement in

providing such services, the statute provides in pertinent part:

The legislature finds and declares that it is the policy of this state:
....
(6) To ensure that when a local government provides to its
inhabitants cable television services, telecommunications services or
advanced services, or any combination thereof, and competes with
private providers whose activities are regulated by the local
governmental entity, the local government does not discriminate against

5
Louisiana Revised Statutes 13:5129 provides that a decree validating a bond issue is
conclusive and binding as to all matters that might have been presented and cannot be collaterally
attacked in a subsequent suit.
6
Louisiana Code of Civil Procedure Article 531, regarding lis pendens, states that when two
or more suits are pending in a Louisiana court or courts on the same transaction or occurrence,
between the same parties in the same capacities, the defendant may have all but the first suit
dismissed by filing the exception of lis pendens. If no exception is filed, the article provides that the
first final judgment rendered shall be conclusive of all.

9

the competing providers of the same services.

(7) To ensure that when a local government provides to its
inhabitants cable television services, telecommunications services or
advanced services, or any combination thereof, it will not be precluded
from engaging in “bundling” those services or engaging in any other
lawful business practice that its private-sector competitors are legally
permitted to engage in.

In other words, the private and local government service providers are to compete on

a level field when providing the covered services to the public. To that end, the Fair

Competition Act provides specific restrictions on the local governmental entity.

The question of whether the Fair Competition Act prohibits the use of utility

revenues to repay bonds in the manner provided for in the City’s bond revenue

ordinance is a question of law that we will determine based upon a de novo review

of the record. See Guillot v. La. Gaming Control Bd., 98-1461 (La.App. 1 Cir.

10/26/99), 761 So.2d 561; Foster v. Conagra Poultry Co., 95-793 (La.App. 3 Cir.

2/14/96), 670 So.2d 471, writ denied, 96-0645 (La. 4/26/96), 672 So.2d 674.

We are guided in our interpretation of the relevant statutes by the special rules

that have been enacted by the legislature in La.R.S. 1:1, et seq. See Gregor v.

Argenot Great Cent. Ins. Co., 02-1138 (La. 5/20/03), 851 So.2d 959. The Louisiana

Supreme Court has aptly summarized these guiding principles as follows:

Louisiana Revised Statute 1:3 provides, in pertinent part, that “[w]ords
and phrases shall be read with their context and shall be construed
according to the common and approved usage of the language” and the
“word ‘shall’ is mandatory.” (Emphasis added.) Louisiana Revised
Statute 1:4 provided that “[w]hen the wording of a Section [of a statute]
is clear and free of ambiguity, the letter of it shall not be disregarded
under the pretext of pursuing its spirit.” The legislative branch also has
provided general rules for interpreting laws in La. C.C. art. 9 et seq.
See, in particular, La. C.C. arts. 9 and 11. We are bound by the language
of a relevant law. Allen v. State, through the Ernest N. Morial-New
Orleans Exhibition Hall Authority, 02-1072, p. 12 (La. 4/9/03), 842
So.2d 373, 381.

10

Id. at 964.

Additionally, we recognize that because La.Const. art. 3, § 15(A) provides, in

pertinent part, that “[e]very bill shall contain a brief title indicative of its object[,]”

the title of a law may be examined to determine its purpose as well. Id. Accordingly,

there is no question that “[t]he starting point for the interpretation of any statute is

the language of the law itself.” Id. (Footnote omitted).

Examining the statute at issue, we hold that the district court legally erred in

its interpretation of the permissible use of pledged utility resources under the Fair

Competition Act. We base this holding on our finding that the use of residual utility

revenues to repay bonds in advance of any default in repayment of the bonds is not

a pledge under the law and violates the cross-subsidization prohibitions7 found in the

Fair Competition Act, particularly La.R.S. 45:844.53(2). See La.Civ.Code art. 3165;

Scott v. Corkern, 231 La. 368, 91 So.2d 569 (1956).

The relevant statute of the Fair Competition Act that is the source of this

controversy is La.R.S. 45:844.52, which provides:

A. The local governing authority may by resolution determine to
issue one or more bonds to finance the capital costs for facilities
necessary to provide to subscribers one or more covered services.

B. The resolution shall:

(1) Describe the purpose for which the indebtedness is to be
created.

(2) Specify the dollar amount of the one or more bonds proposed
to be issued.

C. (1) A bond issued under this Section shall be secured and paid
for solely from the revenues generated by the local government from
providing the covered services.[8]

7
See La.R.S. 45:844.51(A)(3); La.R.S. 45:844.52(C)(1); La.R.S. 45:844.52(C)(2); La.R.S.
45:844.53(2).
8
“Covered services” are “telecommunications services, advanced services and cable
television services, individually and collectively, and regardless of the technology used to provide

11

(2) A local government may not pay the origination, financing, or
other carrying costs associated with the one or more bonds issued under
this Section from the general funds or other enterprise funds of the local
government. Nothing in this Section shall preclude a local government
from using general funds or other enterprise funds to advance funds for
the feasibility study prescribed under R.S. 45:844.49 or for start-up
costs[9] for the proposed venture, provided that any such funds advanced
are repaid by the enterprise fund established under R.S. 45:844.51 at
interest rates and on terms and conditions available to private enterprises
in the open market.

(3) Nothing in this Chapter shall preclude a local government
that owns and operates electric, water, gas, sewer and other utilities
from pledging the resources of such utilities to obtain the best available
interest rates, terms and conditions for the bonds necessary to finance
the facilities used to provide the proposed covered services.

(4) Nothing under this Section provides a local governing
authority bonding authority in addition to that provided under existing
state law.

(Emphasis added.)

Section 9 of the preamble to the ordinance appears to track the language of

La.R.S. 45:844.52(C)(3) by purporting to pledge the Residual Revenues of the utility

system to obtain a more favorable interest rate. That section reads as follows:

SECTION 9. The Lafayette City-Parish Council and the Lafayette
Public Utilities Authority (the “Governing Authority”) hereby
determines that the pledge of all the Net Revenues, as defined herein,
from the Communications System and the Residual Revenues, as
defined herein,[10] from the Utilities System as security for payment of
the Bonds, is necessary to obtain the best available interest rates, terms
and conditions for the Bonds, as provided in Title 45, Section
844.52(C)(3) of the Louisiana Revised Statutes of 1950, as amended[.]

those services, unless otherwise specified in this Chapter.” La.R.S. 45:844.43(6).
9
“Start-up costs” are “those costs reasonably and prudently incurred by the local government
(including legal and professional services) in obtaining the feasibility study required under this
Chapter, in seeking to obtain assent of the financial market place for funding of the proposed project,
and other related costs through the closing of the sale of the bonds or other financing vehicles
supporting the provisioning of covered services, and specifically excludes capital costs as defined
herein.” La.R.S. 45:844.43(18).
10
Article 1, Section 1.1 of the ordinance provides the definitions to be used when considering
the context of the ordinance. That section contains a definition of “Net Revenues,” but contains no
definition of “Residual Revenues.”

12

However, Section 10 of the preamble to the ordinance seems to conflict with the

provisions of La.R.S. 45:844.52(C)(1) in that it purports to provide a source of

payment other than the revenues generated by the Communications System.

SECTION 10. The Bonds will be payable primarily from the Net
Revenues and, to the extent such Net Revenues are insufficient to meet
the Bond Service Requirement of the Bonds, from the Residual
Revenues. The Bonds constitute Subordinated Indebtedness of the
Utilities System, as defined and provided for in the General Utilities
Revenue Bond Ordinance No. 0-122-2004, adopted by the Governing
Authority on June 29, 2004[.]

Article IV of the ordinance sets forth in more detail the contemplated bond

security and repayment scheme contemplated in Sections 9 and 10 of the preamble

to the ordinance. Article IV is entitled “SOURCE OF PAYMENT OF BONDS;

SPECIAL BONDS OF THE ISSUER” and reads in it entirety as follows:

SECTION 4.1. Bonds not to be Indebtedness of the Issuer. The
Bonds shall not be or constitute general obligations or indebtedness of
the Issuer within the meaning of the Constitution of Louisiana, but shall
be payable solely from and secured by a lien upon and a pledge of the
(i) Net Revenues of the Communications System, in the manner and to
the extent herein provided, and (ii) Residual Revenues. No Bondholder
shall ever have the right to compel the exercise of the ad valorem taxing
power of the Issuer or taxation in any form on any real or personal
property to pay such Bonds or the interest thereon, nor shall any
Bondholder be entitled to payment of such principal and interest from
any other funds of the Issuer other than Net Revenues and Residual
Revenues in the manner and to the extent herein provided.

SECTION 4.2. Security for Bonds. The payment of the principal
of, premium, if any, and interest on the Bonds shall be secured forthwith
equally and ratably by an irrevocable lien on (i) the Net Revenues, all in
the manner and to the extent provided herein, prior and superior to all
other liens or encumbrances on the Net Revenues, except as otherwise
provided herein, and the Issuer does hereby irrevocably pledge the Net
Revenues to the payment of the principal of, premium, if any, and
interest on the Bonds and (ii) to the extent the Net Revenues, excluding
loans under Section 4.3 hereof, are insufficient to meet the Bond Service
Requirement on the Bonds, the Residual Revenues, before their use for
any other purpose set forth in Section 5.1(e)(iv)(C) [sic] of the Utilities
Bond Ordinance.

Notwithstanding any other provision of this Ordinance, the pledge
of Residual Revenues set forth herein (but only until such Residual

13

Revenues are released from the capital additions fund established under
the Utilities Bond Ordinance) shall be subordinate to the pledge created
in Section 4.2 of the Utilities Bond Ordinance.

SECTION 4.3. Loans. In accordance with the Communications
Act, the Utilities System is permitted to make loans to the
Communications Division, such loans to be administered by the Utilities
Department, provided such loans meet applicable law. Such loans will
be deposited in the Receipts Fund and can be used to make all payments
from the Receipts Fund as set out in this Ordinance.

SECTION 4.4. Special Obligations of the Utilities System. The
Bonds are Subordinated Indebtedness. As such the Residual Revenues
of the Utilities System are hereby pledged as security for the payment of
the principal of, premium, if any, and interest on the Bonds. In addition
to the pledges set forth in this Ordinance, the Utilities Bond Ordinance
secures the Bonds as Subordinated Indebtedness. The Consulting
Engineer for the Utilities System, as designated under the Utilities Bond
Ordinance, shall annually review the Issuer’s rates for Utilities System
services to ensure that the Issuer meets its rate covenant, as set out in
Section 7.4 hereof.

As we appreciate the proposed payment structure, the financial obligations

incurred by the City in issuing the Communications System Revenue Bonds are to be

first satisfied from the Net Revenues of the Communications System and, if the Net

Revenues are not sufficient to meet the current obligation, the balance is to be

satisfied from the Residual Revenues of the Utilities Systems. However, because the

Residual Revenues of the Utilities Systems are already pledged to pay other

indebtedness pursuant to a previously enacted City Utilities Bond Ordinance, only

that portion of the Residual Revenues not necessary to satisfy the obligation under

the former bond ordinance may be used to satisfy the obligations of the

Communications System. Thus, the contemplated use of the Residual Funds of the

Utilities Department clearly exceeds the stated directive of La.R.S. 45:844.52(C)(1),

which requires that the issued bonds “be secured and paid for solely from the

revenues generated by the [City] from providing the covered services” (emphasis

added), and of La.R.S. 45:844.52(C)(3), which expressly limits the pledge of

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resources11 from an existing utilities department “to obtain[ing] the best available

interest rates, terms and conditions for the bonds necessary to finance the facilities

used to provide the proposed covered services.”

Bellsouth argues that the district court erred in finding this mechanism a

permissible application of the pledge of existing utility resources, as is contemplated

by La.R.S. 45:844.52(C)(3). Specifically, it argues that the district court failed to

recognize that, rather than the bond ordinance authorizing the contemplated “pledge

of resources” allowed by La.R.S. 45:844.52(C)(3), the bond ordinance impermissibly

authorizes an assignment of revenue from other utility divisions and that such

assignment violates the cross-subsidizing prohibition found in La.R.S. 45:844.53(2)

which provides that “[a] local government may not cross-subsidize its covered

services with tax dollars, income from other local government or utility services,

below-market rate loans from the local government or any other means.” (Emphasis

added.) It contends that the bondholders should have access to any such pledged

revenue from these other utilities only after there has been a default in payment and

only after the requirements are met for proceeding against pledged property,

according to the law on a creditor’s rights to pledged property set forth in

La.Civ.Code art. 3165. We agree.

Louisiana Constitution Article 6, Section 37(A) specifically sets forth what a

political subdivision may pledge to secure an indebtedness arising from the issuance

of bonds:

The legislature by law may authorize political subdivisions to
issue bonds or other debt obligations to construct, acquire, extend, or
improve any revenue-producing public utility or work of public
improvement. The bonds or other debt obligations may be secured by
mortgage on the lands, buildings, machinery, and equipment or by the
pledge of the income and revenues of the public utility or work of public

11
We also note that the term “resources” is not defined in the Fair Competition Act.

15

improvement. They shall not be a charge upon the other income and
revenues of the political subdivision.

(Emphasis added.)

A “pledge” is defined as a contract between a debtor and creditor by which the

debtor gives something to the creditor as security for this debt. La.Civ.Code art.

3133. According to La.Civ.Code art. 3165, a true pledge of assets cannot be disposed

of without compliance with the formalities of an event of default and the attainment

of a judgment:

The creditor cannot, in case of failure of payment, dispose of the
pledge; but when there have been pledges of stock, bonds or other
property, for the payment of any debt or obligation, it shall be necessary
before such stocks, bonds or other property so pledged shall be sold for
the payment of the debt, for which such pledge was made, that the
holder of such pledge be compelled to obtain a judgment in the ordinary
course of law, and the same formalities in all respects shall be observed
in the sale of property so pledged as in ordinary cases; but in all pledges
of movable property, or rights, or credits, stocks, bonds or other
movable property, it shall be lawful for the pledger to authorize the sale
or other disposition of the property pledged, in such manner as may be
agreed upon by the parties without the intervention of courts of justice;
provided, that all existing pledges shall remain in force and be subject
to the provisions of this act.

Id.

Nevertheless, the district court concluded that because the “things” being

pledged by the City in the ordinance are the fruits of the existing utilities system, the

requirement of default is not necessary. In reaching this determination, the district

court relied on La.Civ.Code art. 3168, which provides in part that “[t]he fruits of the

pledge are deemed to make a part of it, and therefore they remain, like the pledge, in

the hands of the creditor[.]” We find any reliance on this article to be misplaced. The

clear language of La.Const. art. 6, § 37(A) establishes that the pledge itself is the

“income and revenues” of the public utility. The income and revenues cannot be the

pledge and, at the same time, the fruits of the pledge. Thus, we reject the premise

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that the “things” being pledged in this case are the fruits of the pledged assets.

We agree with Bellsouth that the bond repayment scheme at issue is more akin

to an assignment rather than a pledge. We duly note Bellsouth’s reliance on the

Louisiana Supreme Court’s language in Scott, 231 La. 368, 91 So.2d 569, to

distinguish between an assignment and pledge. According to Scott, an assignment

is a species of sale that provides for the immediate vesting of title in the transferee,

while a pledge “is the antithesis of an assignment[,]” allowing the debtor to retain the

title of the thing pledged, while the creditor receives, either actually or constructively,

security for payment of a debt. Id. at 571. As stated in BG Wire Rope & Slings, Inc.

v. Dyson, 03-2390, pp. 4-5 (La.App. 1 Cir. 9/17/04), 884 So.2d 688, 691, writ denied,

04-2993 (La. 3/24/05), 896 So.2d 1045:

An assignment of an asset as payment, and the pledging or
offering of security to be held until a loan is paid, are not the same
transaction and do not produce the same consequences. An assignment
transfers title of the asset to the assignee, who then has the immediate
right, upon signing of the agreement, to pursue payment of the loan from
the assigned asset. With a pledged asset, the creditor must wait until the
debtor defaults on the loan before the asset may be used for payment.

Therefore, the failure of the City’s ordinance to provide for a requirement of default

before accessing residual revenues to repay bonds is not a pledge of assets and is a

prohibited cross-subsidization pursuant to La.R.S. 45:844.53(2).

Language throughout the ordinance clearly establishes that the City

contemplates using the Residual Revenues as more than a vehicle by which it can

obtain better financial terms on the bonds as contemplated by La.R.S.

45:844.52(C)(3). Section 10 of the preamble to the ordinance allows for normal bond

repayment obligations to be met through the use of residual revenues from the City’s

existing utilities system, in direct contravention of La.R.S. 45:844.53. Rather than

serve as a security device by way of pledge, the Residual Revenues are being used to

17

make up any deficiencies between the bond repayment amounts and the revenues

from the covered services, and this prior to any event of default. This is further

evidenced by the requirement set forth in Article X, Section 10.1 of the ordinance that

residual revenues be deposited in a Sinking Fund prior to bond payments being due,

as well as by Article VII, Section 7.1 which provides that the new communications

system and existing utilities system will be operated “in such manner in order to

insure the continued availability of Net Revenues and Residual Revenues to pay all

costs acquired by this Ordinance.” Further, Article VII, Section 7.4 of the ordinance

states that the City will ensure that residual revenues are available to pay any

differences between net revenues generated by the existing utilities system and any

bond amounts that are due by raising the rates of its other utility services in the

amount necessary to ensure that the principal and interest payments can be made.

As previously stated, we find these provisions to be in direct derogation of the

cross-subsidization prohibitions found throughout the Fair Competition Act. The Fair

Competition Act, as the name expresses, is intended to provide a framework for local

governments to fairly compete with private providers and carries out the goal of the

legislature to police the local governments’ access to their resources of revenues from

existing utilities and taxes in such a manner that the use of these resources will not

impede fair competition. See J.M. Brown Constr. Co. v. D & M Mech. Contractors,

Inc., 275 So.2d 401 (La.1973) (explaining that the general purpose and object of the

law must be kept in mind and statutes must be given such fair and reasonable

interpretation as to support the purpose and object for which the law was enacted).

2. Violation of the Single Enterprise Fund Provision

We find that in order to assist in the prevention of cross-subsidization, the Fair

Competition Act also requires the creation of a single enterprise fund. Louisiana

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Revised Statutes 45:844.51 provides, in this regard:

A. A local government that provides one or more covered
services under this Chapter:

(1) Shall establish a single enterprise fund entitled the
“communications services enterprise fund” to account for the local
government’s operations of covered services.

(2) Shall adopt operating and capital budgets for the local
government’s covered services.

(3) Except as provided in R.S. 45:844.52(C)(2), or subject to
rules established under R.S. 45:844.55(D), may not transfer any
appropriation or other balance in any other enterprise fund established
by the local government to any enterprise fund established by the local
government under this Section.

B. The restrictions on transfers described in Paragraph (A)(3) do
not apply to transfers made by a local government between other
enterprise funds established by the local government.

The sections of the Fair Competition Act referenced in La.R.S. 45:844.51(A)(3) are

La.R.S. 45:844.52(C)(2), which allows for the use of enterprise funds to advance

start-up costs and feasibility study costs, and La.R.S. 45:844.55(D), which mandates

that the Louisiana Public Service Commission adopt rules to define and govern

equitable cost allocation and to provide safeguards to ensure against cross-

subsidization, i.e., “cost allocation and affiliate transaction rules.”

Section 4 of the preamble to the bond ordinance appears to directly reference

the City’s obligation under La.R.S. 45:844.51(A)(1) in that it provides:

SECTION 4. In accordance with Title 45, Section 844.50 [sic] of
the Louisiana Revised Statutes of 1950, as amended, the Issuer shall
establish a single enterprise fund entitled the “communications services
enterprise fund” to account for the City’s operation of the
Communications System[.]

However, despite recognizing this obligation in the preamble and stating its intention

to do so, the City took no steps to create such fund in the body of the ordinance.

Instead, in Article V, Section 5.1 of the bond ordinance the City created five separate

19

funds: the “Receipts Fund,” the “Operating Fund,” the “Sinking Fund,” the “Reserve

Fund,” and the “Capital Additions Fund.” The language of La.R.S. 45:844.51(A)(1)

states that the creation of such fund “shall” take place. To the extent that the

ordinance fails to create this fund, we find that the ordinance violates La.R.S.

45:844.51 of the Fair Competition Act.

THE CITY’S APPEAL ISSUES

1. Exceptions of Peremption and Subject Matter Jurisdiction

In answer to Bellsouth’s appeal, the City contends that the district court

erroneously overruled its exceptions of peremption and subject matter jurisdiction.

The premise of the City’s argument is that Bellsouth’s challenge to the ordinance in

the district court was too late, since it was filed more than sixty days after the bond

election on the proposition was held. The City argues that La.Const. art. 6, § 35(A),

as amended, requires that any legal challenge to a bond issue that has been authorized

by election must occur within sixty days of the election that is held. The City argues,

consequently, that the district court lacked jurisdiction to hear Bellsouth’s motion for

judgment. We disagree and find no error in the ruling of the district court.

Louisiana Revised Statutes 13:5121-5127 (Bond Validation Law) sets forth the

exclusive remedies for legally challenging the validity of governmental bonds. Smith

v. Parish of East Baton Rouge, 515 So.2d 632 (La.App. 1 Cir.), writ denied, 515

So.2d 1100 (La.1987); Cent. La. Bank & Trust Co. v. Avoyelles Parish Police Jury,

493 So.2d 1249 (La.App. 3 Cir. 1986). The Louisiana Constitution grants jurisdiction

to the district courts to decide these challenges within specified time frames that are

set forth in La.Const. art. 6, § 35.

What is immediately apparent upon examination of La.Const. art. 6, § 35 is the

fact that it contains two sub-parts—Section 35(A), which is titled “Contesting

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Election; Time Limit,” and Section 35(B), which is titled “Contesting Ordinance or

Resolution; Time Limit.” Section 35(A) states the following, regarding challenges

to a bond election:

Section 35. (A) Contesting Election; Time Limit. For sixty days
after promulgation of the result of an election held to incur or assume
debt, issue bonds, or levy a tax, any person in interest may contest the
legality of the election, the bond issue provided for, or the tax
authorized, for any cause. After that time no one shall have any cause
or right of action to contest the regularity, formality, or legality of the
election, tax provisions, or bond authorization, for any cause
whatsoever. If the validity of any election, tax, debt assumption, or
bond issue authorized or provided for is not raised within the sixty days,
the authority to incur or assume debt, levy the tax, or issue the bonds,
the legality thereof, and the taxes and other revenues necessary to pay
the same shall be conclusively presumed to be valid, and no court shall
have authority to inquire into such matters.

Section 35(B), on the other hand, states:

(B) Contesting Ordinance or Resolution; Time Limit. Every
ordinance or resolution authorizing the issuance of bonds or other debt
obligation by a political subdivision shall be published at least once in
the official journal of the political subdivision or, if there is none, in a
newspaper having general circulation therein. For thirty days after the
date of publication, any person in interest may contest the legality of the
ordinance or resolution and of any provision therein made for the
security and payment of the bonds. After that time, no one shall have
any cause of action to test the regularity, formality, legality, or
effectiveness of the ordinance or resolution, and provisions thereof for
any cause whatsoever. Thereafter, it shall be conclusively presumed that
every legal requirement for the issuance of the bonds or other debt
obligation, including all things pertaining to the election, if any, at
which the bonds or other debt obligation were authorized, has been
complied with. No court shall have authority to inquire into any of these
matters after the thirty days.

Applying two of the basic principles of statutory interpretation—that the words

of a law must be given their generally prevailing meaning and that, when the words

are ambiguous, their meaning must besought in the context in which they occur and

in regard to the text of the law as a whole—we find no merit to the City’s argument

that Section 35(A) applies to Bellsouth’s challenge to the bond ordinance. See

La.Civ.Code arts. 11, 12. On the face of Sections 35(A) and 35(B), it is clear that

21

there are indeed two separate peremptive periods made available for challenges to

elections and ordinances, respectively. Lege v. Vermilion Parish Sch. Bd., 360 So.2d

664 (La.App. 3 Cir. 1978) (citing Andrieux v. East Baton Rouge Parish Sch. Bd., 254

La. 819, 227 So.2d 370 (La.1969)). As we recognized in Lege, Section 35(A)

establishes a peremptive period during which suits to contest the legality and validity

of bond and tax elections shall be brought. Likewise, we have previously recognized

Section 35(B) provides a thirty-day peremptive period for filing a challenge to a

resolution authorizing the issuance of a governmental bond. See Cent. La. Bank &

Trust. Co., 493 So.2d 1249. Application of the constitutional peremptive statutes as

suggested by the City would lead to absurd results and would require the court to

ignore the clear language of these provisions.

In addition, we find that the Fair Competition Act itself, in La.R.S. 45:844.50

and La.R.S. 45:844.52, requires both an election and subsequent adoption of a bond

resolution or ordinance regarding any authorized bond issuance. These different

stages of the bond issuance process further signify the legislature’s intent to provide

for two steps in the municipal bond issuance process as well as separate challenges

to each of these steps. In fact, Article XI, Section 11.5 of the City’s ordinance

provides for a thirty-day period after publication wherein “any person of interest may

contest the legality of [the] ordinance.”

In this case, Bellsouth filed its motion for judgment in accordance with La.R.S.

13:5125, within thirty days of the City’s published notice of the bond ordinance on

September 9, 2005. Thus, the challenge to the bond ordinance was timely. See

La.Const. art. 6, § 35(B). The rulings of the district court dismissing the exceptions

of peremption and lack of subject matter jurisdiction are, accordingly, affirmed.

2. The District Court’s Refusal to Consider the Proffered Evidence from the
Public Service Commission Hearings

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The City also argues that the district court erred in not considering its proffered

evidence with regard to the actions before the Louisiana Public Service Commission.

The district court is given vast discretion in its decisions on evidentiary rulings and

its decision to admit or exclude evidence will not be reversed on appeal unless it is

clearly shown that it has abused that discretion. Foster v. Rabalais Masonry, Inc., 01-

1394 (La.App. 3 Cir. 3/6/02), 811 So.2d 1160, writ denied, 02-1164 (La. 6/14/02),

818 So.2d 784. Although we disagree with the district court’s conclusions of law and

findings on several issues, we find that substantial evidence was presented to the

district court during its hearing on the motion for judgment, such that it was not an

abuse of discretion for the district court to accept only as proffered evidence the

general orders of the Louisiana Public Service Commission and briefs filed by

Bellsouth in administrative hearings.12

3. Use of Residual Revenues as Loans

Finally, the City asserts that the district court erred in not concluding that the

use of Residual Funds from the Utilities Department constituted a permitted loan. We

recognize that the City could loan the Communications Services funds derived from

other sources so long as the loan is “at interest rates and on terms and conditions

available to private enterprises in the open market.” La.R.S. 45:844.52(C)(2). In

fact, Article IV, Section 4.3 of the ordinance permits loans from Utilities System to

Communications System “provided such loans meet applicable law.” However, a

clear reading of the ordinance as a whole establishes that the section is to be read

independently of the other provisions of the ordinance setting forth the use of the

12
We further note that La.R.S. 45:844.53(4)(c)(iii) provides that “[n]othing in this
Subparagraph shall authorize local governments to engage in cross-subsidizations prohibited by this
Chapter or other pricing in violation of federal or state law, including rules of the Louisiana Public
Service Commission.” (Emphasis added.)

23

Utilities System’s Residual Funds. Thus, we find no error in the district court’s

refusal to categorize the repayment scheme set forth in the ordinance as a loan.

NAQUIN AND EASTIN’S APPEAL ISSUES

1. Motion for Extension of Time to File Untimely Brief

Naquin and Eastin filed a petition to appeal the district court judgment entered

on November 14, 2005, that dismissed their motion for judgment pending in division

B. According to La.R.S. 13:5128, a petition for appeal from the final judgment of the

district court on a bond validation issue must be filed with the district court within ten

days of the date the judgment is entered. In addition, the appeal is allowed only if the

party taking the appeal has (1) the record certified to the proper appellate court and

(2) his brief filed in the proper appellate court within twenty days from the date on

which the judgment of the district court is entered, unless a shorter time is ordered by

the appellate court. Id. In this case, twenty days from November 14, 2005, was

Sunday, December 4, 2005. Because Sunday is a legal holiday, Naquin and Eastin’s

appellate brief was to have been filed in this court no later than December 5, 2005,

and the record was to have been certified to this court by this date as well. See

La.R.S. 1:55(A)(1); La.Code Civ.P. art. 5059. The district court record was certified

by the district court on December 1, 2005, and lodged in this court on December 6,

2005. Naquin and Eastin’s brief, however, was filed in this court on December 7,

2005, two days past the twenty-day deadline required for the filing of the brief under

La.R.S. 13:5128.

Naquin and Eastin filed a motion requesting an extension of time to file their

brief past the twenty-day time limit set forth in La.R.S. 13:5128. In addition, the City

filed a motion to dismiss the appeal and an alternative exception of lack of subject

matter jurisdiction based on the untimely filing of the brief.

24

We are bound by the language of a relevant law for purposes of statutory

construction. See Gregor, 851 So.2d 959. Louisiana Revised Statutes 13:5128 states,

in part:

No appeal to the court of appeal . . . shall be allowed unless the petition
therefor is filed within ten days from the date on which the judgment of
the court is entered and only if the party taking the appeal has the record
certified to the proper appellate court and his brief filed therein within
twenty days from the date on which the judgment of the court is entered,
or such shorter time as may be required by the appellate court.

(Emphasis added.)

In legislation, “[t]he word ‘shall’ is mandatory[.]” La.R.S. 1:3. This court is without

authority to disregard the clear and unambiguous language of La.R.S. 13:5128. See

La.R.S. 1:4. The record reflects that Naquin and Eastin have failed to perfect a timely

appeal in accordance with La.R.S. 13:5128. The appeal is not properly before this

court and is, therefore, dismissed.

DISPOSITION

For the foregoing reasons, we reverse the judgment dismissing the motion for

judgment filed by Bellsouth Telecommunications, Inc. and enjoin the Lafayette City-

Parish Consolidated Government from issuing the bonds authorized by Ordinance

Number 0-230-2005 pending compliance with applicable law as set forth in this

opinion. We assess all costs of this appeal to the Lafayette City-Parish Consolidated

Government to the extent allowed by law. We further dismiss the appeal of Elizabeth

W. Naquin and Matthew B. Eastin as untimely at appellants’ cost.

REVERSED IN PART; RENDERED IN PART; AND DISMISSED IN PART.

25