Opinion
No. 2:18-CV-00500 WBS EFB No. 2:18-cv-01212 WBS EFB
12-18-2020
SACRAMENTO METROPOLITAN CABLE TELEVISION COMMISSION, Plaintiff, v. COMCAST CABLE COMMUNICATIONS MANAGEMENT, LLC, Defendant.
Harriet Ann Steiner, Joanna M. Gin, Joshua Alan Nelson, Mark Randall Velasquez, Best Best & Krieger LLP, Sacramento, CA, for Plaintiff. Edward Lee Seidel, Jie-Ming Chou, Patrick Michael Rosvall, Scott McLeod, Cooper, White & Cooper LLP, Jill B. Rowe, Venable LLP, San Francisco, CA, for Defendant.
Harriet Ann Steiner, Joanna M. Gin, Joshua Alan Nelson, Mark Randall Velasquez, Best Best & Krieger LLP, Sacramento, CA, for Plaintiff.
Edward Lee Seidel, Jie-Ming Chou, Patrick Michael Rosvall, Scott McLeod, Cooper, White & Cooper LLP, Jill B. Rowe, Venable LLP, San Francisco, CA, for Defendant.
MEMORANDUM AND ORDER RE: CROSS MOTIONS FOR SUMMARY JUDGMENT
WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE Plaintiff Sacramento Metropolitan Cable Television Commission ("SMCTC" or "plaintiff") brought this action against Defendant Comcast Cable Communications Management, LLC ("Comcast" or "defendant") claiming that (1) Comcast violated California Public Utility Code §§ 5840, 5860, and 5870; (2) Comcast breached its contract with plaintiff; (3) Comcast unjustly enriched itself at plaintiff's expense; and (4) that it is entitled to declaratory relief. (Compl. (Docket No. 1).) This court has jurisdiction of this action pursuant to 28 U.S.C. § 1332 because there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000, exclusive of interest and costs.
All docket references refer to the docket entries in Case No. 2:18-cv-00500. These two cases were consolidated pursuant to Federal Rule of Civil Procedure 42(a)(2) for all purposes and the parties agreed that the main case number would be 2:18-cv-500 WBS EFB. (Docket No. 20.)
Each claim of the Complaint is predicated on the theory that Comcast underpaid annual cable "franchise fees" and Public, Educational, and Governmental ("PEG") fees owed to plaintiff under California's Digital Infrastructure and Video Competition Act of 2006 ("DIVCA"), Cal. Pub. Util. Code § 5800, et seq. The claims involve six forms of alleged underpayments based on two audits covering the periods of 2013–2014 and 2015–2016. Comcast moves for summary judgment on each of the six forms of alleged underpayments. (Def.’s Mot. for Summ. J.) (Docket No. 42; Docket No. 34.) SMCTC moves for partial summary judgment on three of the six forms of alleged underpayments and as to whether Comcast's unilateral deductions prior to paying SMCTC are permitted under DIVCA and applicable federal law. (Pl.’s Mot. for Partial Summ. J). ("Pl.’s Mot. for Summ. J.") (Docket No. 49; Docket No. 41.)
SMCTC does not move for summary judgment as to launch incentives, multi-service fees, and customer credits for missed installation/activation appointments. (See generally Pl.’s Mot. for Summ. J.) Although SMCTC did not initially move for summary judgment on tower rental fees, they agree that there are no material issues of disputed facts on this claim and that it is appropriate for disposition on summary judgment. (Pl.’s Opp'n to Def's Mot. for Summ. J. at 1, 17.) (Docket No. 54.)
I. Facts & Procedural Background
Plaintiff SMCTC is a joint powers agency with certain regulatory authority over cable services in Sacramento County. (Def.’s Statement of Undisputed Facts at ¶ 1 ("Def.’s SUF") (Docket No. 44).) The members of SMCTC are the County of Sacramento and the cities of Sacramento, Galt, Folsom, Citrus Heights, Rancho Cordova and Elk Grove. (Pl.’s Statement of Undisputed Facts at ¶ 4 ("Pl.’s SUF")) (Docket No. 49-1.) In California, cable franchises were historically issued by local government entities, such as SMCTC, to cable operators. (Id. at ¶ 4.) DIVCA replaced that regime with a statewide franchising system managed by the California Public Utilities Commission ("CPUC"). (Id. at ¶ 6.) As of 2011, Comcast has operated its cable systems in California pursuant to a CPUC-issued franchise. (Id. at ¶ 7.) Comcast, either directly or through its affiliates, provides video service under a state-issued video franchise within SMCTC's jurisdiction. (Id. at ¶ 8.)
Under the 1984 Federal Cable Act, ("Cable Act"), 47 U.S.C. § 521, et seq., franchising authorities may require a cable operator to pay franchise fees up to five percent of its annual "gross revenues .... from the operation of the cable system to provide cable service." 47 U.S.C. § 542(b). Franchise fees are "passed through" and paid by cable subscribers as part of their monthly cable bills. 47 U.S.C. § 542(c). Any fees assessed by franchising authorities for PEG channels and capital support are also "passed through" to cable subscribers. (Id. )
DIVCA imposes an annual "User Fee" on cable operators as a condition to obtaining a franchise ("CPUC User Fee"). See Cal. Pub. Util. Code § 441. DIVCA additionally imposes the payment of franchise fees, which are paid to municipalities for the use of the public rights-of-way in their jurisdictions. See Cal. Pub. Util. Code § 5860(a). Unless a locality specifically adopts a lower fee, California Public Utilities Code section 5840(q)(1) requires all DIVCA franchisees to pay a franchise fee equal to the applicable local agency equal to five percent of its "gross revenues." (Pl.’s SUF at ¶ 14.) Neither SMCTC nor its member agencies have adopted a lower fee. (Id. ) DIVCA authorizes franchising authorities to implement a PEG fee of up to one percent of cable service revenues, which is also paid to localities. See Cal. Pub. Util. Code § 5870(n). SMCTC and its member agencies have adopted ordinances to activate a one percent PEG fee on DIVCA franchisees, such as Comcast. (Pl.’s SUF at ¶ 18.) State franchise holders are authorized to identify and collect both the franchise fees and PEG fees as separate line items on a subscriber's bill. See Cal. Pub. Util. Code. §§ 5860(j) ; 5870(o).
A state franchise holder is required to remit franchise and PEG fees to a local entity on a quarterly basis. See Cal. Pub. Util. Code §§ 5860(h), 5870(m). A local entity may examine a franchise holder's business records once a year to ensure payment of franchise fees in accordance with Section 5860 of DIVCA. See Cal. Pub. Util. Code § 5860(i). In 2016 and 2017, SMCTC retained Ashpaugh & Sculco, CPAs, PLC ("Ashpaugh & Sculco") to perform an audit of franchise fees and PEG fees Comcast paid for the 2013–2014 and 2015–2016 periods. (Pl.’s SUF at ¶¶ 23–28.) These audits reported that Comcast had underpaid franchise fees and PEG fees to SMCTC in both audit periods in the amounts of $682,911 for 2013–14 and $828,590 for 2015–16. (Id. at ¶¶ 25, 28.)
The court previously dealt with certain aspects of this dispute in Comcast of Sacramento I, LLC. v. Sacramento Metropolitan Cable Television Commission, 250 F. Supp.3d 616, 618–27 (E.D. Cal. 2017) (" SMCTC I"). In that case, Comcast sued SMCTC and alleged causes of action for conversion and "common count" after SMCTC withheld Comcast's franchise security deposit following a dispute over the amount of fees Comcast was required to pay SMCTC under DIVCA. Id. at 619. SMCTC raised a defense of offset, claiming that an audit for the period of 2011-2012 established underpayments of franchise and PEG fees. Id. at 620. The court ruled that PEG fees did not fall within the definition of "gross revenue" for purposes of calculating franchise fees because it fell within an exception stated in Cal. Pub. Util. Code § 5860(e). Id. at 628. The court also found that the CPUC User Fee was a "fee of general applicability" excluded from franchise fees under the Federal Cable Act. Id. at 626.
Both SMCTC and Comcast appealed from the judgment in SMCT I. See Comcast of Sacramento I, LLC v. Sacramento Metropolitan Cable Television Commission, 923 F.3d 1163, 1165–1172 (9th Cir. 2019) (" SMCTC II"). The Ninth Circuit held that Comcast's attempt to recover its security deposit was barred by Section 555a(a) of the Federal Cable Act, which limits relief in suits against franchising authorities to injunctive and declaratory relief. See id. at 1171. While the case was on appeal, SMCTC initiated the present consolidated lawsuits against Comcast based on the two more recent audits referenced in the Complaints.
The court takes judicial notice of the provisions of the SMCTC members city/county codes and the SMCTC Resolution provided in plaintiff's request for judicial notice. (Request for Judicial Notice 1–8 ("Pl.’s RJN") (Docket No. 50).) See Tollis, Inc. v. Cty. of San Diego, 505 F.3d 935, 938 n. 1 (9th Cir. 2007) ("Municipal ordinances are proper subjects for judicial notice."). Defendant has not objected to items listed in plaintiff's Request for Judicial Notice 9–11, 13–15, 17, 19, and 21. These requests consist of defendant's franchise application, franchise certificates, the parties’ engagement agreements for analysis of franchise and PEG fees, deposition excerpts by defendant's witness Lee-Ann Peling, and defendant's audit responses. Accordingly, the court will take judicial notice of these documents. Defendant objects to the items listed in plaintiff's Request for Judicial Notice 12, 16, 18, 20, and 21 on the grounds that the contents are hearsay and not subject to judicial notice under Federal Rule of Evidence 201. These documents consist of deposition excerpts from the deposition of Robert Allen Davison and Steven M. Detrick, the 2013-2014 audit report, the 2015-2016 audit report, and the corrected 2015-2016 audit report. Because the court did not rely on these documents for the truth of the matter asserted, the court will take judicial notice of these documents as well.
Defendant requests that the court take judicial notice of five documents. (Request for Judicial Notice ("Def.’s RJN") (Docket No. 46).) These documents are: (1) this court's April 5, 2017 order on the cross-motions for summary judgment in Case No. 2:16-cv-01264 titled Comcast of Sacramento I, LLC v. Sacramento Metropolitan Cable Television Commission, 250 F. Supp. 3d 616, 626 (E.D. Cal. 2017) ("SMCTCI"); (2) the Ninth Circuit Court of Appeal's Opinion filed on May 8, 2019 in SMCTCII, 923 F.3d 1163 (9th Cir. 2019) ; (3) this court's October 1, 2019 judgment in Case No. 2:16-cv-01264 entered pursuant to the Ninth Circuit's decision; (4) the operative complaint in the instant case (Case No. 2:18-cv-00500), which contains SMCTC's 2013-2014 audit reports as attachments, and (5) the operative first amended complaint in the instant case (Case No. 2:18-cv-01212), which contains SMCTC's 2015-2016 audit report. Plaintiff has not objected. Accordingly, the court will take judicial notice of the items listed in defendant's Request for Judicial Notice in its entirety.
II. Discussion
Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A material fact is one that could affect the outcome of the suit, and a genuine issue is one that could permit a reasonable jury to enter a verdict in the non-moving party's favor. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The party moving for summary judgment bears the initial burden of establishing the absence of a genuine issue of material fact and can satisfy this burden by presenting evidence that negates an essential element of the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Alternatively, the movant can demonstrate that the non-moving party cannot provide evidence to support an essential element upon which it will bear the burden of proof at trial. Id. Where "the case turns on a mixed question of fact and law and the only disputes relate to the legal significance of undisputed facts, the controversy collapses into a question of law suitable to disposition on summary judgment." Thrifty Oil Co. v. Bank of Am. Nat'l Tr. & Sav. Ass'n, 322 F.3d 1039, 1046 (9th Cir. 2003). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Any inferences drawn from the underlying facts must, however, be viewed in the light most favorable to the party opposing the motion. See id.
Comcast makes several evidentiary objections to the Declaration of Robert Davison and its attachments, the deposition excerpts of Garth Ashpaugh, and the expert report prepared by Mr. Ashpaugh attached to the Declaration of Mark Velasquez (Docket No. 54-1) on the grounds that the statements by Mr. Davison and Mr. Ashpaugh lack foundation, are hearsay, speculative, and irrelevant. (See Docket No. 53-1; Docket No. 56-1.) The Ninth Circuit has established that "to survive summary judgment, a party does not necessarily have to produce evidence in a form that would be admissible at trial, as long as the party satisfies the requirements of Federal Rule of Civil Procedure 56." Fraser v. Goodale, 342 F.3d 1032, 1036–37 (9th Cir. 2003.) Moreover, "[a]s a practical matter, the court finds this entire exercise of considering evidentiary objections on a motion for summary judgment to be futile and counterproductive." Burch v. Regents of University of California, 433 F.Supp.2d 1110, 1122 (E.D. Cal. 2006.) Accordingly, if Comcast wishes to raise these evidentiary objections, it may do so at trial.
A. PEG Fees
Section 5870(n) of the California Public Utilities Code states that "a local entity may, by ordinance, establish a fee to support PEG channel facilities." Cal. Pub. Util. Code § 5870(n). Each SMCTC member locality has imposed a PEG fee. Comcast, in turn, passes the PEG fee on to its subscribers, who pay the fee "as a separate line item on [their] regular bill." Cal. Pub. Util. Code § 5870(o). Comcast does not keep any portion of the PEG fees that it bills to subscribers and forwards those PEG payments to SMCTC. (Pl.’s Resp. to Def.’s SUF at ¶ 15 (Docket No. 54–2).) The parties dispute whether Comcast must include PEG fees in its "gross revenue" for purposes of calculating its state franchise fees. The dispute centers over the interpretation of California Public Utilities Code § 5860 (" section 5860").
See, e.g., Sacramento Cty. Code § 5.50.977; Citrus Heights Mun. Code § 90-183; Elk Grove Mun. Code § 5.50.010; Folsom Mun. Code § 5.50.010; Galt Mun. Code § 5.55.030; Rancho Cordova Mun. Code § 5.75.800; Sacramento City Code § 5.28.2670.
Section 5860(d) defines "gross revenue" for purposes of state franchise fees as:
[A]ll revenues actually received by the holder of a state franchise, as determined in accordance with generally accepted accounting principles, that is derived from the operation of the holder's network to provide cable or video service within the jurisdiction of the local entity, including ... [a]ll charges billed to subscribers for any and all cable service or video service provided by the holder of a state franchise, including all revenue related to programming provided to the subscriber, equipment rentals, late fees, and insufficient fund fees.
Cal. Pub. Util. Code § 5860(d) – (d)(1).
Section 5860(e)(6) contains an exception to the above provision for "[a]mounts billed to, and collected from, subscribers to recover any tax, fee, or surcharge imposed by any governmental entity on the holder of a state franchise, including, but not limited to, sales and use taxes, gross receipts taxes, excise taxes, utility users taxes, public service taxes, communications taxes, and any other fee not imposed by this section." See Cal. Pub. Util. Code § 5860(e)(6). Comcast argues that the payments it collects from subscribers to pay PEG fees fit within this exception because they are imposed by section 5870 and thus are not part of "gross revenue" as defined in Section 5860(d). (Def.’s Mot. for Summ. J. at 7.) SMCTC contends that section 5860(e) ’s exception does not apply because PEG fees are imposed pursuant to section 5860(c). (Pl.’s Mot. for Summ. J. at 13.) Section 5860(c) states that no local entity may demand any additional fees or charges from the holder of a state franchise "based solely on its status as a provider of video or cable services other than as set forth in this division ..." See Cal. Pub. Util. Code § 5860(c). SMCTC argues that "this division" means Division 2.5 of the California Public Utilities Code (i.e. all of DIVCA), and that 5860(c), through its incorporation of all of DIVCA, is the section that effectively authorizes PEG fees. (Pl.’s Mot. for Summ. J. at 13.)
Comcast's position is more persuasive. Under the plain language of Section 5860(e)(6), "gross revenue" does not include revenues from "any ... fee not imposed by [ Section 5860 ]." Cal. Pub. Util. Code § 5860(e)(6). PEG fees are authorized under California Public Utilities Code section 5870 (" section 5870"). The use of the term "this division" in Section 5860(c) does not displace the legislature's use of the term "this section" in 5860(e)(6), which specifically addresses which fees should be included and excluded from "gross revenue" when calculating franchise fees. If the legislature had meant "this division" in Section 5860(e)(6), it would not have said "this section." It is improper to "assume that our Legislature chose ... an indirect route to convey an important and easily expressed message." Debbie Reynolds Prof. Rehearsal Studios v. Superior Court, 25 Cal. App. 4th 222, 232, 30 Cal.Rptr.2d 514 (1994).
SMCTC also points out that PEG fees were not specifically enumerated in the exception for "gross revenue" laid out in 5860(e). (Pl.’s Mot. for Summ. J. at 13–14.) They contend that the canon of esjusdem generis (meaning "of the same kind") dictates that the PEG fees should be not be included because the list of items enumerated are all generally applicable taxes and the PEG fee is not a generally applicable tax. (Id. at 14.) However, Section 5860(e)(6) treats "fees", "taxes", and "surcharges" the same in enumerating the exclusions from "gross revenue." See Cal. Pub. Util. Code § 5860(e)(6) (excluding from revenues "amounts billed to, and collected from, subscribers to recover any tax, fee, or surcharge, imposed by any governmental entity on the holder of a state franchise ..."). Most critically, the legislature chose to use the broad catch-all "any other fee not imposed by this section", and made no limitations as to the type of fees that would be encompassed. Therefore, the doctrine of esjusdem generis appears to confirm that the exclusion from "gross revenue" applies broadly to "any other fees" not imposed by Section 5860, regardless of whether they are styled as a "fee" or a "tax."
SMCTC additionally argues that PEG fees do not fall within the exception in section 5860(e) because the PEG fees are imposed by DIVCA, not local government entities. (Pl.’s Mot. for Summ. J. at 10.) However, while section 5870(n) authorizes localities to establish a fee to support PEG channel facilities, it does not mandate that localities do so. See Cal. Pub. Util. Code § 5870(n). Instead, localities may decide whether they wish to pass an ordinance to recover a PEG fee and determine the amount of the fee (not to exceed 1 percent of the holder's "gross revenue" if no fee existed before the implementation of DIVCA or not to exceed 3 percent of the holder's "gross revenue" if a PEG fee in excess of 1 percent was already being charged before DIVCA.) See id.
The California Attorney General Opinion that SMCTC relies on for its position is inapposite. The Attorney General Opinion relates to whether PEG fees were taxes requiring voter approval under California law. See 99 Cal. Op. Att'y Gen. 1 (2016) at *5. Although Attorney General Opinions are entitled to "great weight", Napa Valley Educators’ Association v. Napa Valley Unified School District, 194 Cal. App. 3d 243, 251, 239 Cal.Rptr. 395 (1987), the Opinion cited by SMCTC focused on whether a local entity which passed an ordinance to collect the public access fee was imposing a charge on an individual or entity that would not be otherwise obligated to pay such a fee. See 99 Cal. Op. Att'y Gen. 1 at *5. Because DIVCA mandates that franchise applicants must provide both public access channels and any required funding under Cal. Pub. Util. Code § 5870, the Attorney General concluded that the PEG fees were not a tax. Id. However, the Attorney General did not analyze or mention whether PEG fees are excluded from "gross revenues" under Section 5860(e)(6), and did not address the flexibility that municipalities have in determining whether to impose a PEG fee and in what amount. Accordingly, the court finds that the opinion is not instructive here. The court finds as a matter of law that it is the municipalities who impose a PEG fee, not DIVCA itself.
SMCTC finally argues that the PEG fees must be included in calculating franchise fees because the legislature stated that it was their intent that "the definition of gross revenues in this division shall result in local entities maintaining their existing level of revenue from franchise fees." Cal. Pub. Util. Code § 5810(a)(4)(d). ["S]tatements of the intent of the enacting body contained in a preamble, while not conclusive, are entitled to consideration." People v. Canty, 32 Cal. 4th 1266, 1280, 14 Cal.Rptr.3d 1, 90 P.3d 1168 (2004). However, California Code of Civil Procedure § 1859 provides that "when a general and a particular provision are inconsistent, the latter is paramount to the former" and "a particular intent will control a general one that is inconsistent with it." Cal. Code. Civ. P. § 1859. As such, the generalized intent of the legislature set forth in the preamble cannot override the specific exclusions from "gross revenue" set forth in section 5860(e)(6).
Accordingly, the court finds as a matter of law that PEG fees do not constitute "gross revenue" under section 5860(d) and will grant summary judgment in Comcast's favor on this claim.
B. CPUC User Fee
Comcast argues that it must reduce the state franchise fee it is obligated to pay to SMCTC to stay within the five percent cap on franchise fees imposed by the Federal Cable Act, 47 U.S.C. § 541, et seq., because the CPUC User Fee is a "franchise fee" under the Act. (Def.’s Mot. for Summ. J. at 10.) SMCTC disagrees, contending that the CPUC user fee does not count toward the Act's five percent cap because it is not a "franchise fee." (Pl.’s Mot. for Summ. J. at 6.)
47 U.S.C. § 542(b) of the Federal Cable Act states that "[f]or any twelve-month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system to provide cable services." 47 U.S.C. § 542(g)(1) defines "franchise fee" as including "any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator ... solely because of [its] status as such." 47 U.S.C. § 542(g)(1). Section § 542(g)(2) excludes from this definition "any tax, fee, or assessment of general applicability (including any such tax, fee, or assessment imposed on both utilities and cable operators or their services but not including a tax, fee, or assessment which is unduly discriminatory against cable operators)." DIVCA separately imposes annual franchise fees of five percent of a cable operator's cable service revenues, which are paid to each locality where it operates its cable system pursuant to a state franchise. See Cal. Pub. Util. Code § 5860(a) (requiring the "holder of a state franchise" to "remit to the local entity a state franchise fee" where it "offers video service").
The CPUC also imposes an annual User Fee "to be paid by an applicant or holder of a state franchise pursuant to [DIVCA] (commencing with Section 5800 )." Cal. Pub. Util. Code § 441. "The annual fee shall be established to produce a total amount equal to that amount established in the authorized commission budget for the same year, including adjustments for increases in employee compensation, other increases appropriated by the Legislature, and an appropriate reserve to carry out the provisions of [DIVCA]." Id. The CPUC User Fee applies not only to cable operators, but to all "holders of a state franchise" that authorizes the "operation of any network in the right-of-way capable of providing video service to subscribers" ("video franchise holders"). See id. at § 441, 5830(f) - (h). "[I]t is possible to qualify for the [CPUC User Fee] without being a cable operator." Cty. of Los Angeles v. Time Warner NY Cable LLC, No. CV-12-06655 SJO, 2013 WL 12126774, at *2 (C.D. Cal. July 3, 2013).
This court previously ruled that the CPUC User Fee is not a franchise fee within the meaning of 47 U.S.C. § 542 for two reasons. See SMCTC-I, 250 F. Supp. 3d at 624–25. First, because the CPUC User Fee also applies to non-cable operating video franchise holders, it is not imposed on cable operators "solely because of their status as such" under 47 U.S.C. 542(g)(1). See id. Second, because the User Fee is also imposed on non-cable operators, the court found that it is a fee of "general applicability" under 47 U.S.C. § 542(g)(2). See id. However, Comcast contends that a recent order by the Federal Communications Commission ("FCC") clarifies the proper scope of franchise fees under 47 U.S.C. § 542 and confirms that the CPUC user fee is a "franchise fee" subject to the federal 5% cap. See In the Matter of Implementation of Section 621(a)(1) of the Cable Commc'ns Policy Act of 1984 As Amended by the Cable Television Consumer Prot. & Competition Act of 1992 ("Section 621 Order"), 34 FCC Rcd. 6844, at ¶¶ 80–94 (Aug. 2, 2019).
The Section 621 Order emphasizes that Congress defined the term "franchise fee" broadly to "limit the imposition of any tax, fee, or assessment of any kind — including fees purportedly for provision of non-cable services for access to, use of, or the value of the rights of way – to five percent of the cable operator's revenue from cable services." Id. at ¶ 90. A local government entity cannot "end-run the cap by imposing fees for access to any public right of way within the franchise area or in instances of overlapping jurisdiction." Id. The FCC states that 47 U.S.C. § 622 envisions that fees imposed on cable operators for access to the rights of way in their capacity as franchisees is a fee imposed on a cable operator "solely because of their status as such." Id. at ¶ 92. Understood in this manner, the FCC states that "any assessment on a cable operator for constructing, managing, or operating its cable system in the rights-of-way is subject to the five percent cap" even if "other non-cable providers ... are subject to the same or similar access fees." Id. at ¶ 92. This is because the definition of "franchise fee" in section 622(g)(1) centers on why the fee is imposed on a cable operator, i.e. "solely because of [its] status" as a franchisee, and not to whom the fee is imposed. (Id. ) The FCC states that generally-applicable taxes are distinct and their "validity must be shown, at least in part, by their application to broader classes of entities or citizens beyond providers of cable and non-cable communications services." (Id. )
Comcast contends that, although the CPUC User Fee at issue in this case has a different name and is imposed under a different section of DIVCA from the fees expressly labeled as "franchise fees", both are "monetary assessments for Comcast's right to operate its cable system in California and therefore constitute franchise fees subject to the federal 5% cap." (Def.’s Mot. for Summ. J. at 14.) Comcast likewise argues that the FCC's order precludes any argument that the CPUC User Fee is a "fee of general applicability" because the CPUC User Fee "applies only to video franchise holders pursuant to a specific enabling statute, as a condition to use of the public right of way under a state franchise." (Id. )
The court is not convinced by Comcast's argument. The Section 621 Order was addressing the issue of whether Comcast should have to obtain a second franchise and pay the franchise fee again due to its status as a telecommunications provider after already paying one based on its status as a cable operator in City of Eugene v. Comcast of Oregon II, Inc., 359 Or. 528, 375 P.3d 446 (2016). The Section 621 Order also mentioned in a footnote that many commenters had specifically asked about DIVCA and its annual "administrative fee" in addition to the five percent franchise fees imposed, and cited this court's previous opinion where it found that the CPUC User Fee was a fee of "general applicability." See Section 621 Order, 34 FCC Rcd. 6844 at ¶ 117 n. 431. Despite being given this opportunity to weigh in on whether the various fees in DIVCA violated the Federal Cable Act's five percent franchise fee cap, the FCC "decline[d] ... to opine on the application of the Cable Act to specific state laws" and noted that these concerns are "largely settled by section 622, which excludes any tax, fee, or assessment of general applicability from the definition of franchise fees." Id. at ¶ 117.
Notwithstanding the Section 621 Order, the court concludes that the CPUC User Fee is a fee of general applicability. The CPUC User Fee is not a fee imposed solely on cable companies or other video franchise holders "in exchange for the cable operator's right to access and use the rights-of-way." Id. at ¶ 89. Rather, the CPUC User Fee is a way for the CPUC to recover its regulatory costs associated with DIVCA. See Cal. Pub. Util. Code § 441. The CPUC imposes similar annual user fees on "every electrical, gas, telephone, telegraph, water, sewer system, and heat corporation." See Cal. Pub. Util. Code § 431. Although the court recognizes that Comcast is not a public utility, the fact that the CPUC charges these annual user fees to virtually all the utilities and cable franchise holders within its jurisdiction lends further credence to the argument that the CPUC User Fee is a "fee of general applicability" under section 542(g)(2). Indeed, the fact that these CPUC annual user fees are assessed against virtually all public utilities in California seems to satisfy the FCC's admonition in the Section 621 Order that the validity of generally applicable taxes "must be shown, at least in part, by their application to broader classes of entities or citizens beyond providers of cable and non-cable communications services." See Section 621 Order, 34 FCC Rcd. 6844 at ¶ 92.
Comcast has not contended that the CPUC fee is unduly discriminatory toward cable operators, nor can it do so, because it does not apply solely to cable operators. See Time Warner, 2013 WL 12126774 at *2.
At oral argument, Comcast argued at length that the CPUC fee imposed on utility companies, see Cal. Pub. Util. Code § 431, is distinguishable from the CPUC User Fee at issue here because they were promulgated by different statutes, historically calculated differently, and pay for different expenses within the CPUC. Although the court recognizes these distinctions, they do not change the court's analysis.
For the reasons stated above, the court finds as a matter of law that the CPUC User Fee is a "fee ... of general applicability", and is not a "franchise fee" within the meaning of 47 U.S.C. § 542. Accordingly, the court will grant SMCTC summary judgment on this claim.
Because the court finds that the CPUC User Fee is a fee of general applicability, the court need not decide whether the Section 621 Order applies retroactively or not.
C. Tower Rental Fees
Under Cal. Pub. Util. Code § 5860, "gross revenue" means "all revenue actually received by the holder of a state franchise ... that is derived from the operation of the holder's network to provide cable or video service within the jurisdiction of the local entity ..." See Cal. Pub. Util. Code § 5860(d). Comcast leases available space on its communications towers to third parties, such as wireless carriers. (Pl.’s Resp. to Def.’s SUF at ¶ 28.) The parties disagree as to whether, as a matter of law, these tower rental fees should be included in "gross revenue" for the purpose of calculating franchise and PEG fees. (Def.’s Mot. for Summ. J. at 23.)
Comcast contends that tower rental fees are not part of its cable or video service within the jurisdiction of SMCTC because the lessees are third parties who do not use the towers to provide any cable or video service to subscribers. (Def.’s Reply in Supp. of Mot. for Summ. J. at 13.) (Docket No. 56.) SMCTC argues that the tower rental fees should be included in the calculation of Comcast's "gross revenue" because, in addition to leasing space on the tower, Comcast uses the towers to provide video services to its subscribers and is "obtaining additional revenues by virtue of that operation." (Pl.’s Opp'n to Def's Mot. for Summ. J.) (Docket No. 54.)
In the court's view, the leasing of tower space to third party users does not fall within the definition of "gross revenue" under Cal. Pub. Util. Code § 5860(d). Comcast's tower rental fees are not derived from the operation of the towers to provide cable or video service within the jurisdiction; rather, the tower rental fees are derived from the leasing of facilities for third-party users. (Def.’s Mot. for Summ. J. at 23.) If Comcast were to cease using its towers for the provision of cable and video services to subscribers, it would presumably have no effect on its ability to rent space on these towers to third parties. The fees generated do not depend on Comcast's operation of the towers to provide video and cable service to its subscribers, but on the physical existence of the tower.
Moreover, the Federal Cable Act forecloses including the tower rental fees in the calculation of "gross revenue" for purposes of calculating franchise fees. Under the Federal Cable Act, "the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system to provide cable services." See 47 U.S.C. § 542(b). The FCC has clarified that the franchise fee "only applies to revenue obtained from ‘cable services,’ not non-cable services that Congress understood could provide additional sources of revenue." See Section 621 Order, 34 FCC Rcd. 6844 at ¶ 89.
Accordingly, the court concludes as a matter of law that the tower rental fees should not be included as "gross revenue" for cable services for the purpose of calculating franchise and PEG fees under both California Public Utility Code § 5860(d) and the Federal Cable Act. Comcast is therefore entitled to summary judgment on this claim.
D. Multi-Service Fees
Section 542(b) of the Cable Act establishes a uniform federal policy which limits franchise fees to five percent of a cable operator's annual revenues from cable services only. See 47 U.S.C. § 542(b). DIVCA, in keeping with the Federal Cable Act, likewise specifies that the state franchise fee shall be applied only to the "gross revenue" attributable to video service. See Cal. Pub. Util. Code § 5860(f). "Gross revenue" is defined as "all revenue actually received by the holder of a state franchise, as determined in accordance with generally accepted accounting principles ("GAAP") ..." See Cal. Pub. Util. Code § 5860(d).
Comcast offers multiple services, such as cable, internet, telephone, and home security monitoring, that customers can purchase individually or in multi-product packages called "bundles." (Pl.’s Resp. to Def.’s SUF at ¶ 20.) Bundles allow customers to purchase multiple services at a discount compared to the sum of the stand-alone prices for those services when purchased individually. (Id. at 21.) Comcast has established various additional "multi-service" fees that apply to its bundles, including late fees, early termination fees, and whole house maintenance fees. (Def.’s SUF at ¶ 21.) Comcast claims that because of the federal mandate that franchise fees can only be charged on a cable operator's cable service, it allocates revenues from its multiservice fees to isolate the portion attributable to cable service in calculating franchise fee payments. (Def.’s Mot. for Summ. J. at 17.) Comcast argues that it has correctly allocated the portion of multiservice fees attributable to cable service revenues in calculating its franchise and PEG fees pursuant to GAAP. (See Def.’s Mot. for Summ. J. at 18.) SMCTC disagrees and argues that Comcast's methodology regarding the allocation of multi-service fees is inconsistent with GAAP and incorrectly allocated. (See Pl.’s Opp'n to Def.’s Mot. for Summ. J. at 17–25.)
In its motion for summary judgment, Comcast addresses many multi-service fees: specifically, late fees, not sufficient fund fees, convenience fees (for payment over the telephone), early termination fees, whole house maintenance fees, and video activation/installation credits to customers. (Def's Mot. for Summ. J. at 16–17.) However, although Comcast moves for summary judgment on all multi-service fees, it failed to identify and address each multi-service fee at issue in its initial motion for summary judgment, such as billing and collection fees and write-offs and recoveries, (See Pl.’s Opp'n to Def's Mot. for Summ. J. at 18.), and addresses them only in a cursory manner in its Reply. (Def.’s Reply in Supp. of Mot. for Summ. J. at 14, 18.)
Most critically, however, Comcast has not demonstrated to the court that the methodology it uses in allocating the revenues for each multi-service fee at issue actually complies with DIVCA and GAAP. Deposition excerpts that Comcast cites for the proposition that its allocations comply with GAAP merely show that Comcast's Vice President of Finance and Accounting, Jeff Aldi, believes "that GAAP ... requires the allocation of the late fee or the multi-service fees to the component units of accounting." (See Decl. of Edward Seidel at Ex. 10, attaching excerpts from the transcript of the August 26, 2020 Dep. of Jeff Aldi at pp. 108:3–109:12; 110:11–111:13) (Docket No. 45). A simple belief by Comcast's executive is insufficient to prove that Comcast's practices in allocating multi-service fees actually comply with GAAP.
Moreover, other testimony casts doubt upon Mr. Aldi's belief that Comcast's methodology in fact complies with GAAP. Mr. Aldi stated that he does not review the calculations relative to the determination of franchise fees to ensure that they were performed in accordance with GAAP. (See Decl. of Mark Velasquez at Ex. D, attaching excerpts from the transcript of the August 26, 2020 Dep. of Jeff Aldi at 96:2–15) (Docket No. 54-1). Additionally, SMCTC submits that the two other franchise holders within SMCTC's jurisdiction, who are also required to apply GAAP, allocate similar multi-service fees differently. (Pl.’s Opp'n. to Def.’s Mot. for Summ. J. at 23.)
After reviewing all the evidence in the record, the court concludes that there is a genuine issue of material fact as to whether Comcast's allocation of multi-service fees is appropriate and complies with GAAP and DIVCA. Accordingly, the court will deny Comcast's motion for summary judgment on this claim.
E. Launch Incentives
The court next addresses the parties’ contentions as to whether "launch incentives" constitute "gross revenue" pursuant to Cal. Pub. Util. Code § 5860(d). Comcast and other cable operators typically pay programmers for content and then package and distribute that content to subscribers. (Pl.’s Resp. to Def.’s SUF at ¶ 24.) However, in order to sell their content to a cable operator, programmers will sometimes pay certain "launch incentives" to the operator. (Id. ) "Launch incentives" are typically paid up front to the cable operator as part of a content agreement. (Id. ) Comcast amortizes these "launch incentives" over the life of its contract with the programmer and contends that this effectively lowers the negotiated price a cable operator pays for the content. (Def.’s Mot. for Summ. J. at 20.)
As defined supra at p.20, "gross revenue" under DIVCA means all revenue actually received by the holder of a state franchise, as determined in accordance with GAAP. See Cal. Pub. Util. Code § 5860(d).
--------
Comcast argues that because "launch incentives" reduce Comcast's costs for programming, they do not constitute "gross revenue" for the purpose of calculating franchise and PEG fees. (Id. ) SMCTC disagrees, and argues that under DIVCA, "gross revenue" is all revenue unless excluded. (Pl.’s Opp'n. to Def.’s Mot. for Summ. J. at 34.) Cal. Pub. Util. Code § 5680(e)(9) provides an exclusion from gross revenue for "revenue received as reimbursement by programmers of a specific, identifiable marketing costs incurred by the holder of a state franchise for the introduction of new programming." SMCTC contends that "launch incentives" count as "gross revenue" unless they specifically fall into this exception under § 5680(e)(9). (Pl.’s Opp'n. to Def.’s Mot. for Summ. J. at 34.)
A provision of GAAP, Accounting Standards Codification ("A.S.C.") 605-50-45-12, provides that "cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendor's products or services ... [and] shall be characterized as a reduction of cost of sales when recognized in the customer's income statement." See Financial Accounting Standards Board, A.S.C. at 605-50-45-12. Comcast cites this provision, and argues that this signifies that "launch incentives" received from the programmer (the "vendor") constitute a reduction of the purchase price of the programming for cable operators (the "customer"), and therefore do not constitute "gross revenue" under DIVCA. (Def.’s Mot. for Summ. J. at 21.)
SMCTC disagrees and points to a different provision of GAAP that details when certain activities that Comcast may classify as "launch incentives" would actually constitute "gross revenue" under DIVCA. (Pl.’s Opp'n. to Def.’s Mot. for Summ. J. at 35.) A.S.C. 607-50-45-13 states that the presumption that cash consideration received by a customer (i.e. Comcast) from a vendor (i.e. the programmer) constitutes a reduction of the prices of the vendor's products or services is overcome, and the consideration should be considered revenue, when "[the consideration represents] a payment for assets or services delivered to the vendor ..." See A.S.C. at 605-50-45-13. SMCTC contends that activities like television ads, bill inserts, channel position, or local media ads are all examples of activities that would constitute revenue if cash consideration were received from the programmer. (Decl. of Mark Velasquez at Ex. F, attaching Garth Ashpaugh's Expert Report at 7.) (Docket No. 54-1.)
The court has not been provided detailed information as to what activities Comcast includes within the category of "launch incentives." Moreover, it is clear that the parties have dueling interpretations of which GAAP provisions are applicable and which activities those GAAP provisions encompass. Accordingly, there is a genuine issue of material fact as to whether Comcast should exclude launch incentives from the definition of "gross revenue" under Cal. Pub. Util. Code § 5860(d) and the court will deny Comcast's motion for summary judgment on this claim.
F. Customer Credits for Missed Installations/Appointments
Under DIVCA, gross revenue is defined as "all revenue actually received by the holder of a state franchise .... as determined in accordance with generally accepted accounting principles, that is derived from the operation of the holder's network to provide cable or video service ..." Cal. Pub. Util. Code § 5860(d). Comcast subscribers receive credits on their bills if a Comcast technician is late or fails to show up to an activation or installation appointment. (Pl.’s Resp. to Def.’s SUF at ¶ 26.) SMCTC contends that these credits should be included as "gross revenue" in calculating franchise and PEG fees. (Pl.’s Opp'n to Def.’s Mot. for Summ. J. at 28.) Comcast argues that these customer credits do not count as "gross revenue" under Section 5860(d) because Comcast does not actually receive revenue from the credits it provides to customers; rather, a customer credit is a reduction in the revenue received. (Def.’s Mot. for Summ. J. at 22.)
SMCTC's argument is unpersuasive. SMCTC recognizes that DIVCA excludes from gross revenue "[a]mounts not actually received, even if billed, such as bad debt; refunds, rebates, or discounts to subscribers or other third parties; or revenue imputed from the provision of cable services for free or at reduced rates." See Cal. Pub. Util. Code § 5860(e)(1). However, SMCTC contends that if Comcast were allowed to exclude credits to customers from the definition of "gross revenue", it would allow Comcast to push a portion of its costs for untimely business practices onto SMCTC. (Pl.’s Opp'n. to Def.’s Mot. for Summ. J. at 28.) SMCTC's belief that such a practice would be unfair is unavailing; the plain language of DIVCA limits "gross revenue" to amounts actually received, and Comcast does not receive any revenue for the customer credits that it provides to customers for missed appointments or installations.
The court therefore concludes as a matter of law that customer credits for missed installations or appointments do not constitute "gross revenue" under DIVCA for purposes of calculating franchise and PEG fees, and will grant Comcast summary judgment on this claim.
G. Comcast's Unilateral Deductions Prior to Payment of Franchise and PEG Fees to SMCTC
Section 555a(a) of the Federal Cable Act states that in any court proceeding "involving a claim against a franchising authority or other governmental entity ... arising from the regulation of cable service ... any relief ... shall be limited to injunctive relief and declaratory relief." 47 U.S.C. § 555a(a). SMCTC contends that this provision prevents Comcast from engaging in self-help and adjusting its payments of franchise fees and PEG fees before paying SMCTC. (Pl.’s Mot. for Summ. J. at 16.) SMCTC argues that "because Comcast deducts (or takes out the amount rightfully due to SMCTC in advance) before a determination whether such actions are appropriate", SMCTC is forced to resort to litigation to collect underpayments. (See Pl.’s Reply in Supp. of Mot. for Summ. J. at 10.) (Docket No. 57.) Comcast contends that Section 555a(a) does not apply here because SMCTC initiated this lawsuit against Comcast. (Def.’s Mot. in Opp'n to Pl.’s Mot. for Summ. J. at 7.) Accordingly, the court must address whether Comcast is barred from unilaterally adjusting its payments of franchise fees and PEG fees before paying SMCTC, notwithstanding the court's ruling on whether certain categories of fees constitute "gross revenue" or are "franchise fees". (Pl.’s Mot. for Summ. J. at 16.)
SMCTC relies on Glendale v. Marcus Cable Associates, LLC, 231 Cal. App. 4th 1359, 1377, 180 Cal.Rptr.3d 726 (2014), to support its proposition that Section 555a(a) bars Comcast's deductions of franchise and PEG fees prior to paying SMCTC. In Glendale, the cable operator initially sought monetary damages and then, confronted with the franchising authority's Section 555a(a) defense, deleted its express request for damages and reimbursements and replaced it with a request for a declaration that it had a future right of offset based on past overcharges of PEG fees. Glendale, 231 Cal. App. 4th at 1378, 180 Cal.Rptr.3d 726. The court declared that this was "merely a pleading artifice designed to circumvent the damage prohibition in section 555a(a) of the Federal Cable Act." Id.
SMCTC argues that Comcast's actions are likewise a "ruse designed to obtain a monetary award in contravention of Section 555a(a)." (Pl.’s Mot. for Summ. J. at 3.) However, the thrust of the case in Glendale was that the cable operator sought to recover money that it had already paid to the franchising authority. Glendale is distinguishable because the procedural posture here is the reverse; SMCTC is the party bringing suit against Comcast and Comcast has not sought damages against SMCTC.
SMCTC II, 923 F.3d 1163, 1165 (9th Cir. 2019), likewise offers little support for SMCTC's position. In SMCTC II, Comcast sought monetary damages for SMCTC's alleged conversion of its security deposit. See SMCTC II, 923 F.3d at 1167. The Ninth Circuit held that this was barred by Section 555a(a). Id. at 1171. However, the Ninth Circuit emphasized that it had not "considered whether [ section 555a(a) ] would apply were Comcast defending a suit for underpayment of franchise fees brought by SMCTC as would likely occur were Comcast to deduct the deposit as an overpayment from its franchise fee payments ... instead of bringing suit for damages." Id. at 1172 (emphasis added). It is precisely this procedural posture, which the Ninth Circuit expressly did not consider, which is at issue here.
Moreover, in the recent Section 621 Order, the FCC seems to contemplate that cable providers should take certain offsets or reductions to franchise fees to ensure compliance with the federal 5% cap of franchise fees. See Section 621 Order, 34 FCC Rcd. 6844 at ¶ 111 n.416 (stating that "non-capital costs of PEG requirements must be offset from the cable operator's franchise fee payments.") This position by the FCC lends support to Comcast's argument that these offsets or reductions do not violate 47 U.S.C. § 555a(a).
SMCTC additionally argues that Comcast's unilateral deductions from its franchise fees and PEG fees are barred under DIVCA because they violate California Public Utilities Code § 5860(h). Under this provision, the state franchise fee shall be remitted quarterly to the applicable local entity, with a summary explaining the basis for the calculation of the state franchise fee. See Cal. Pub. Util. Code § 5860(h). Section 5680(h) further states that "[i]f the holder has overpaid the franchise fee, it may deduct the overpayment from its next quarterly payment." Id. SMCTC contends that this provision stands for the proposition that cable operators cannot make any deductions except for past overpayments. (Pl.’s Mot. for Summ. J. at 17.)
The court disagrees. Cal. Pub. Util. Code § 5680(h) does not address the adjustment of payments required to comply with the Federal Cable Act's 5% cap on franchise fee payments whatsoever nor does it explicitly bar deductions by cable operators except for past overpayments. Moreover, as addressed above, the FCC contemplates that franchise authorities and cable operators must make offsets or reductions to franchise fees in order to comply with the federal 5% cap on franchise fees laid out in 47 U.S.C. § 542 and relevant FCC requirements. See Section 621 Order, 34 FCC Rcd. 6844 at ¶ 111 n. 416 (stating that "non-capital costs of PEG requirements must be offset from the cable operator's franchise fee payments."); id. at ¶ 63 n. 251 (holding that franchising authorities cannot ask cable operators to "voluntarily waive the cap and accede to making payments or contributions that are not offset against the statutory limit on franchise fees.") Because California Public Utilities Code § 5860(h) does not state that the only deductions permitted by cable operators are deductions for past overpayments of fees by the provider, the court declines to read such a prohibition into the statute.
Accordingly, the court does not find that SMCTC has met its burden to demonstrate that Comcast's deductions and offsets prior to its payment of franchise and PEG fees to SMCTC violates either 47 U.S.C. § 555a(a) or Cal. Pub. Util. Code § 5680(h) and will deny SMCTC summary judgment on this claim.
IT IS THEREFORE ORDERED that Comcast's motion for summary judgment (Docket No. 42; Docket No. 34.) be, and the same hereby is, GRANTED in part. Comcast is entitled to summary judgment on its claim that PEG fees should not be included as "gross revenue" for the purpose of calculating franchise fees, and its claims that tower rental fees and customer credits for missed installations or appointments should not be included as "gross revenue" for the purpose of calculating franchise fees and PEG fees. Comcast's motion for summary judgment is DENIED as to all other claims.
IT IS FURTHER ORDERED that SMCTC's motion for partial summary judgment (Docket No. 49; Docket No. 41.) be, and the same hereby is, GRANTED in part. SMCTC is entitled to summary judgment on its claim that CPUC fees are not "franchise fees" under the Federal Cable Act. SMCTC's motion for summary judgment is DENIED as to all other claims.