Recent notable developments include the following:
No Franchise Fees on Cable Modem/Internet Access; Dormant PEG Channels: As reported in our email alert of November 23, 2005, the federal District Court in Minnesota recently confirmed that a cable franchise requiring a franchise fee of 5% from all gross revenues of the franchisee, is preempted and does not apply to the extent of revenues from cable modem service. The decision is based on the FCC’s determination that such service is not “cable service” and therefore is beyond the scope of permissible franchise fee collection under federal law, no matter how broad the “gross revenues” language of the franchise. The opinion also includes at page 6 a collection of citations to other decisions to the same effect.
The same decision also addresses the claim of the local franchising authority, the City of Minneapolis, that the cable operator had wrongfully “converted” or taken back channel capacity reserved for public, educational and governmental (PEG) access under the terms of the franchise. The federal court rejected this claim, finding that to the extent certain PEG access capacity was required to be furnished by the cable operator, but had not been used for many years, the statute of limitations was running so long as the PEG channels were not provided, and therefore had expired by the time the city brought its claim. The court also questioned, without deciding, whether PEG access channel capacity constitutes property of the city. (City of Minneapolis v. Time Warner Cable, U.S. D.C. Minn., No. Civ. 05-994, November 10, 2005)
California “Secret Discounts” Law Applied to Home Video Distribution: The California Court of Appeal has ruled in a pending action by independent video retailers against Blockbuster Video and several major film studios, on claims that Blockbuster’s home video licensing and distribution terms from the studios involve “secret” rebates or discounts not provided to other licensees of the studios, in violation of a little-known California statute prohibiting secret discounts and allowances which injure competitors. Among other things, the Court of Appeal held that, depending on the circumstances, a competing buyer may bring action under this law even if it is not identically situated to the competitor which received preferential “secret” terms or discounts. Here, the court is allowing competing video retailers to proceed with claims, even though Blockbuster buys wholesale direct from film studios, while the complaining retailers buy from other wholesale intermediaries. Our partner John Ross, an antitrust and commercial litigation attorney and former chair of the ABA Antitrust Section communications industry subcommittee, has prepared the attached, more in-depth report on this intriguing case. (Eddins v. Sumner Redstone, et al., California Court of Appeal No. B168079, November 22, 2005)
Arbitration in Georgia for California Consumers Unenforceable: A mandatory arbitration provision in EarthLink’s consumer contract for DSL Internet access service was found unenforceable by a California Court of Appeal, to the extent it required the California DSL customer to initiate arbitration in Georgia. Although EarthLink’s principal place of business was found to be in Georgia, the court nevertheless found the provision for arbitration in Georgia to be unconscionable in that it would “pose an insurmountable barrier to recovery of small sums unjustly obtained” from California customers. Separately, the court also found that the EarthLink consumer contract provision that there “shall be no class action arbitration pursuant to this agreement” is unenforceable in accordance with the California Supreme Court decision in Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), previously reported in our Memo of June 28, 2005.
As a result of the Court of Appeal court decision, EarthLink’s position to compel arbitration is denied and plaintiff’s unfair-practices class action continues in state court, claiming that customers were charged for Internet access service commencing on their order date although they were not provided the modem equipment to access the service until some weeks afterwards. (Aral v. EarthLink, Inc., California Court of Appeal No. B177146, filed November 29, 2005)
Tenant Maintenance Obligation Excludes Replacement: A commercial property tenant which was obligated under its lease to “maintain” its leased premises including the roof, in conformity with all applicable building codes, was not obligated to replace the roof to meet Codes even after it became too dilapidated to repair. Tenant lease repair obligations are of course fact-specific and depend on the wording of an individual lease agreement. Here, the court here performed its fundamental contract interpretation function of protecting the reasonable, original expectations of the contracting parties, by finding that no agreement had been made to obligate the tenant to actually replace the roof, when it could no longer be repaired. (ASP Properties Group v. Fard, Inc., California Court of Appeal No. D004896, November 3, 2005)
Open Meeting Laws Cover City-Sponsored Nonprofit; Public Speaker Time Limits Enforced: California’s Brown Act open meeting laws for government agencies are meant to be strictly enforced, and accordingly a city-sponsored nonprofit organization cannot meet in “closed session” to consult with the city’s legal counsel on litigation for which it is the city’s advisor but not a direct party. (Shapiro v. Centre City Development Corporation, California Court of Appeal No. D045506, November 22, 2005) Separately, it was also held that the Brown Act requirement to allow opportunity for public comment at agency meetings may be applied by “reasonable regulations” of the agency. An agency thus may allow up to three minutes per speaker, but exercise reasonable discretion to shorten this period in order to get through its agenda at a particular meeting (Chaffee v. San Francisco Public Library Commission, California Court of Appeal No. A109633, November 21, 2005).