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Recent notable developments include:

 

Portland, OR Denied Free Conduits and Ducts in Telecom Franchise:   The federal District Court for Oregon has determined that the City of Portland cannot require telecom franchisees to provide communications conduit, duct and/or “fiber network connections” to the City for “municipal purposes”, as a franchise condition in addition to overt franchise fees.  The court fond that the open-ended requirement for free duct, conduit and connections is preempted by Section 253(a) of the federal Telecommunications Act, which prohibits any state or local legal requirement which “may prohibit or have the effect of prohibiting the ability” of any entity to provide telecommunications service.  In so doing, the court found that objectionable franchise terms are actionable under Section 253(a), and followed the Ninth Circuit’s recent City of Berkeley decision that a requirement may be preempted if it “may” have the effect of prohibiting telecom service, even if there is no evidence that has yet occurred.  Thus the objectionable franchise provision is preempted and invalid, although the District Court followed other recent decisions finding that the Section 253 violation will not support a federal Section 1983 civil rights claim for additional remedies such as attorney’s fees.  (Time Warner Telecom and Qwest v. City of Portland, U.S.D.C. OR, No. CV04-1393, March 8, 2006)

 

California AB 2371 Threatens Employment Arbitration Agreements:   California Assembly Bill No. 2371, introduced by Assembly member Levine on February 23, 2006, would invalidate arbitration agreements between employers and employees made as a condition of hiring or continued employment, to the extent of any state law employment claims under the California Fair Employment and Housing Act (FEHA).  AB 2371 would take effect January 1, 2008, and has been referred to the Assembly’s Judiciary Committee.

 

Other Arbitration and Employment Developments:  

 

(a)        Insurer Must Defend Against Vendor Employee Claims:  A California Court of Appeal has found that an insurance company owes a duty to defend its insured, under a commercial general liability (CGL) policy, against a suit brought by a contractor (service vendor)’s employees alleging Labor Code violations and a cause of action for false imprisonment.  Based on the policy language and facts of the case, the court found that the CGL exclusion for Employment Practices Liability does not apply to claims by employees of an independent contractor where the defendant is not in an employment relationship with the plaintiff individuals.  (North American Building Maintenance v. Fireman’s Fund, California Court of Appeal No. F047029, March 9, 2006)  The court’s opinion reinforces that claims from a  vendor’s employees may be tendered in appropriate cases to the CGL carrier, as well as to the vendor.

 

(b)        AB 2482 to Ease Arbitration Handling by Corporate Counsel:  Existing California lawyer licensing law allows lawyers not admitted to practice law in California, such as corporate in-house counsel from other states, to handle California arbitrations under specified circumstances.  Pending legislation, AB 2482 introduced February 23, 2006, would remove the January 1, 2007 repeal date of these provisions, allowing them to continue indefinitely.  California lawyer licensing law also allows in-house counsel to practice in California for only their single client employer, under separate provisions previously reported in this space. 

 

(c)        Fifth Circuit Upholds Arbitration Award of $2.9 Million Punitive Damages:  Illustrating the difficulty in obtaining judicial relief from an arbitration award, the Fifth Circuit Court of Appeals has confirmed a $2.9 million punitive damages arbitration award, reaffirming that “courts give significant deference to an arbitration panel’s decision, and rejecting the defendant’s argument that the award violated public policy and was made in manifest disregard of the law.  Notably, it does not appear that the underlying agreement under which the arbitration arose, limited the scope of the arbitrator’s power to award punitive damages.  (Sarofim v. Trust Company of the West, 5th Cir. No. 05-20309, February 8, 2006)

 

Telecom Consumer Bill of Rights Adopted by California PUC:   After years of debate and struggle, the California Public Utilities Commission adopted a decision “designed to empower consumers and prevent fraud in the rapidly changing telecommunications industry”.  The CPU’s Order of March 2, 2006 adopts a revised General Order No. 168, Market Rules to Empower Consumers and to Prevent Fraud.  Importantly, the CPUC’s Order declines to take the burdensome regulatory approach favored by some advocacy groups, and instead adopts aspirational principles of consumer protection, choice and privacy.

 

Specifically, the new CPUC Consumer Bill of Rights rules apply only to telecommunications carriers subject to CPUC jurisdiction as such (not necessarily yet including broadband Internet or VOIP service).  The Consumer Bill of Rights, Freedom of Choice and Privacy principles adopted in this order “shall not be interpreted to create a private right of action, to form the predicate for a right of action under any other state or federal law, or to create liability” that would not otherwise exist.  Beyond this, the Order does adopt specific mandatory rules and responsibilities against slamming (changing a customer’s service provider without authorization) and cramming (billing deceptively or for unauthorized services).  The order also includes extensive provisions for consumer education, CPUC public outreach, and consumer complaint processes.

 

FCC Releases Indefensible Orders Punishing Broadcast Speech:   The FCC released yesterday its long-pending decisions on various broadcast indecency/obscenity complaints generated largely by bulk complaint mills against numerous broadcast television programs and stations.  The FCC ordered millions of dollars in fines against over 100 broadcast television stations, and involving not only the CBS/Super Bowl-Janet Jackson breast exposure of 2004, but other programs from CBS, NBC Telemundo, the WB Network, and local commercial and non-commercial television programming.  Your editor calls the FCC’s orders indefensible in that they are a classic example of the arbitrary and capricious exercise of government power to punish citizens for exercising the First Amendment constitutional right to speak, for content which no precedent or reasoned analysis would have shown to be illegal before it took place. 

 

For example, most of the program content found to be “indecent” did not show actual nudity, but is penalized for suggesting it, such as the program featuring a talk-show guest “in an open-front dress, with her nipples covered”, for which the local Spanish language broadcast station is fined $32,500.  The arbitrary and capricious nature of the thought-police FCC’s steep penalties, and the inability of speakers to identify what is and is not punishable by the government, is illustrated by the history of the FCC’s treatment of the word “fucking”: not punishable when spoken by then-President Richard Nixon in bigoted reference to political enemies; nor prohibited when spoken by singer Bono at an awards show; oops, changing its mind later, the exact same speech by Bono is punishable; and now in 2006, when spoken by Nicole Ritchie at another celebrity award party, punishable (although not being used in any sexual sense).  Similarly, in classic subjective punishment, the FCC’s orders construct a hierarchy of moral levels of use of the word “shit”, which is either indecent and punishable, or profane and therefore objectionable but not punishable, or simply unpunishable, depending on the inscrutable thought-police minutia.  In contrast, the FCC found it not indecent to depict a husband ending his couple’s therapy session by shooting his wife in the face, consistent with the principle that obscenity laws criminalize sex and bodies, but not violence.

 

According to the FCC, its rulings “will provide substantial guidance to broadcasters and the public about the types of programming that are impermissible” under the FCC indecency standard, whatever it may be.  A prudent formulation of today’s FCC’s indecency standard thus might be, for example, Swearing, Gyrating, or Skin (even without genitals), and anything else attracting the wrong kind of attention during an election year.  [Opinions by the editor only] (Notices of Apparent Liability, FCC 06-17, 06-18, 06-19, adopted February 21, 2006, released by FCC March 15, 2006)

 

Consumer Ambulance-Chasing and Unfair Practices Case:   Illustrating the frustration which unfair business practices cases can create for business defendants, a California Court of Appeal heard a class-action unfair business practices case against consumer electronics retailer Best Buy, which had won a trial court order that the class plaintiff’s counsel could not maintain a case with only himself as his own client serving as the plaintiff class representative, due to conflict of interest.  The Court of Appeal has affirmed a trial court ruling under which, since the attorney cannot be both the class plaintiff and the class attorney, he is empowered to conduct “discovery” to identify potential substitute class-action plaintiffs, by a court-ordered letter that defendant Best Buy must send en masse to its own customers, seeking a suitable volunteer to give the case an adequate plaintiff.  (Best Buy Stores, L.P. v. Superior Court, California Court of Appeal No. GO35672, March 13, 2006)

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