Opinion
CASE NO.: CV 02-2553 ABC (Ex)
May 14, 2002
FINDINGS OF FACT AND CONCLUSIONS OF LAW IN SUPPORT OF PRELIMINARY INJUNCTION GRANTED TO PLAINTIFFS PRELIMINARY INJUCTION
Plaintiffs' Application for a Preliminary Injunction (the "Application") came on regularly for hearing before this Court on April 12, 2002. After reviewing the materials submitted by the parties, argument of counsel, and the case file, the Court hereby makes the following findings of fact and conclusions of law:
I. FINDINGS OF FACT
1. In cable television systems, the transmitter is physically connected to the individual subscribers through cables similar to telephone lines. Because these cables must be laid in public rights-of-way and easements, cable operators must secure the necessary permits from local governments. Thus, their operations must be franchised. See Time Warner Entertainment Co., L.P. v. Federal Communications Commission, 93 F.3d 957, 962 (D.C. Cir. 1996).
2. Plaintiffs City of Thousand Oaks ("the City") and County of Ventura ("the County") are municipal corporations with authority to grant and administer cable television franchises. Complaint ¶¶ 1, 2; Adelphia Complaint ¶¶ 16, 19.
3. In 1995, the City adopted Ordinance Number 1242 ("Thousand Oaks Cable Ordinance") to regulate the franchising of cable television systems in the City. Complaint ¶ 8.
"Adelphia Complaint" refers to the Complaint filed by Adelphia California Cablevision, LLC, and Adelphia Communications Corporation in the related action Adelphia California Cablevision, LLC v. Lazz, No. 02-2282 ABC (Ex) (C.D. Cal.).
The City had a prior regulation, Ordinance Number 1234. Complaint ¶ 13 n. 1.
4. The Thousand Oaks Cable Ordinance provides, inter alia, as follows:
Section 4.1
A Franchise and any rights or obligations of the Grantee under the Franchise shall not be sold, assigned, transferred, leased or sublet, either in whole or in part, in any manner, nor shall title thereto, either legal or equitable, or any right or interest therein (other than a mortgage or other security interest), pass to or vest in any person without prior consent of the City.Section 4.2
Ownership or control of the Grantee shall not be transferred without the prior written consent of the City. . . .Section 4.11
A Grantee shall not enter into any management contract or other arrangement for the management of the system, to the 7 extent that such contract or other arrangement would result in a significant change of de facto control over the operations of a Grantee or the system (as defined in Section 4.6), without the prior consent of the City.
5. Additionally, franchisees breach their franchise agreements by "[a]ttempt[ing] to evade any material provision of this Cable Ordinance or a Franchise or the practice of any fraud or deceit upon the City or subscribers." Thousand Oaks Cable Ordinance § 36.1(b).
6. Prior to February 1996, the City granted a franchise agreement to Chronicle Publishing Co. dba Ventura County Cablevision. Complaint ¶ 11; Adelphia Complaint ¶ 19.
7. The franchise was later transferred to Defendant Adelphia California Cablevision, LLC, and Adelphia Communications Corporation (together "Adelphia"). Complaint ¶ 12; Adelphia Complaint ¶ 19.
8. On February 6, 1996, the City granted a franchise to GTE Media Ventures, Inc. ("GTE") to supply cable service within the City. Complaint ¶ 9; Adelphia Complaint ¶ 16; Verizon Resp. to OSC at 3:15-18.
9. On June 30, 2000, GTE merged with Bell Atlantic, Inc. Pursuant to that merger, the franchise was transferred to Defendant Verizon Media Ventures, Inc. dba Verizon Americast, Inc. ("Verizon"). Verizon has operated that franchise since that time. Complaint ¶ 10; Adelphia Complaint ¶ 16; Verizon Resp. to OSC at 3:15-18.
Adelphia Communications Corp. is the parent company of Adelphia California Cablevision, LLC. Complaint ¶ 5.
10. Both the Adelphia and Verizon franchise agreements expressly incorporate the terms of the Thousand Oaks Cable Ordinance. Complaint ¶ 13 (citing section 3.1 of the agreements); Adelphia Resp. to OSC at 14-15.
11. Ventura County Ordinance Numbers 3381, 3401, and 3507 comprise the Ventura County Cable Ordinance. Complaint ¶ 17.
12. Section 7-9 of the Ventura County Cable Ordinance provides: "Grantee shall not transfer or assign any franchises, or any of the rights or privileges granted therein, except with the consent of [the County Board of Supervisors]."
13. On July 2, 1996, the County granted a cable franchise to GTE for the unincorporated areas adjacent to the cities of Thousand Oaks, Camarillo, Oxnard, Port Hueneme, and Santa Paula. Complaint ¶ 15; Adelphia Complaint ¶ 16; Verizon Resp. to OSC at 3:15-18.
14. After the merger with Bell Atlantic, the GTE franchise was transferred to Verizon. Complaint ¶ 16; Adelphia Complaint ¶ 16; Verizon Resp. to OSC at 3:15-18.
15. The Verizon franchise agreement is expressly governed by the terms of the Ventura County Cable Ordinance. Complaint ¶ 17; Adelphia Resp. to OSC at 14-15.
16. In May 2001, Verizon and Adelphia began negotiating an agreement whereby Verizon would sell to Adelphia all of its "assets" through which it operated both its Thousand Oaks and Ventura County franchises, including all of the physical assets, Verizon's customer base, and all of Verizon's liabilities, management responsibilities, and rights to future income. Complaint ¶ 19; Asset Purchase Agreement § 2.1.
17. The agreement was signed on December 17, 2001. Decl. of Dan Deutsch ¶ 4 (filed April 4, 2002).
18. The sale became effective on February 28, 2002, and Adelphia began transferring Verizon's subscribers to its services. Decl. of Lee Perron ("Perron Decl.") ¶¶ 3-4 (filed April 5, 2002).
19. On February 28, 2002, Verizon transferred its "system network assets" to Adelphia. Verizon Resp. to OSC at 4:16-22.
20. The former Verizon subscribers will continue to receive cable television and high-speed internet access through Verizon's former physical assets. Complaint ¶ 21.
21. On February 26, 2002, Adelphia sent a letter to Verizon subscribers indicating that it was "excited to be the new in-home entertainment provider to you and your family." Decl. of Jeffrey T. Melching, Exh. A.
22. On February 28, 2002, Verizon ceased offering cable-related services in the Ventura area and terminated all of its contracts with key cable networks. Verizon Resp. to OSC at 4:23-24; Decl. of Kevin Young ("Young Decl.") ¶ 15.
23. For about 120 days prior to March 9, 2002, Adelphia worked on transferring Verizon's customer management information — including customer identities, billing information, rate information, customer service information, and conditional access information — to the Adelphia customer management system. Perron Decl. ¶ 17. That transition was completed on March 9, 2002.
24. "[T]housands" of Verizon subscribers "have switched to Adelphia." Verizon Resp. to OSC at 5:24-27.
25. All but three of Verizon's employees in Ventura County have ceased working on the Verizon system, and those three are assisting with the "wind down work." Young Decl. ¶ 13.
26. Verizon was scheduled to cease all operations in the City and County on March 30, 2002. Complaint ¶ 22.
27. As a result of the actions taken thus far as a result of the Agreement, Verizon contends it would be impossible to resurrect its cable system in the City and County. Verizon Resp. to OSC at 4-5; Verizon Opp'n to App. for TRO at 3:2-3.
28. Adelphia's rates in the City and County for "full service" cable have consistently been $26.95 a month. Decl. of Michael Friedman ¶ 3.
29. Rates in other areas of Southern California range from $33 to $50 a month. See id. ¶¶ 4-11.
30. The City has received complaints from former Verizon subscribers about their cable service and customer service since the transfer. Decl. of Jason Alcala Exs. A B (filed March 28, 2002).
Defendants' hearsay objection to this evidence is not well-taken. The Court does not consider the complaints for their truth (that Adelphia's customer service is of lower quality than Verizon's) but for the mere fact that the City has received such complaints.
31. If the Agreement is completed, Adelphia will obtain exclusive control over the provision of cable services in the City and in the unincorporated areas of the County covered by the franchise agreements. See Decl. of Dan Deutsch ¶ 3 (March 28, 2002) ("Until recently, Verizon also operated a cable system pursuant to its own franchise with the City."); id. ¶ 13 ("Verizon was ceasing to provide cable service immediately"); Decl. of Lee Perron ¶ 2 (March 31, 2002) ("Adelphia began providing cable television and cable-modem internet access to services to [Verizon's] subscribers connected to the Acquired Assets on February 28, 2002."); id. ¶ 5 ("On March 9, 2002, [Adelphia] formally took over all functions previously performed by Verizon's information management system[.]"); id. ¶¶ 9, 11, 15 (stating that Verizon can no longer provide customer service or cable-modem internet access); id. ¶ 14 ("Verizon has terminated its contractual agreements with content providers[.]"); Decl. of Kevin A. Young ¶¶ 11-12, 15-16 (April 4, 2002); Decl. of John P. Fitzgerald ¶¶ 17, 20.
32. Verizon and Adelphia never sought the consent of the City or the County prior to completing the sale. Complaint ¶¶ 35, 54; Adelphia Complaint ¶¶ 26-27.
33. Defendants did not notify the City and County of the pending sale until its effective date, February 28, 2002. See Perron Decl. ¶ 4.
34. On March 20, 2002, Adelphia brought suit in this Court. Adelphia California Cablevision LLC v. Lazz, No. 02-2282 ABC (Ex) (C.D. Cal.), challenging, under the First Amendment and the Cable Communications Policy Act, 47 U.S.C. § 521, et seq., the City's denial of construction permits to Adelphia to integrate the Adelphia and Verizon systems.
35. On March 25, 2002, the City and County brought the instant breach of contract action against Adelphia and Verizon in Ventura County Superior Court and also filed an Ex Parte Application for a Temporary Restraining Order to halt the sale and transfer of Verizon's assets.
36. On March 27, 2002, Adelphia, joined by Verizon, removed the suit to this Court.
The action was initially assigned to the Hon. George H. King. It was officially transferred to this Court on April 2, 2002, although the Court had begun handling the matter immediately upon removal because of the previously pending case, Adelphia Calif. Cablevision LLC v. Lazz.
37. The Thousand Oaks Cable Ordinance was apparently attached as Exhibit A to Plaintiffs' Complaint in state court. When Adelphia removed the action to this Court, it did not attach any of the exhibits — including its own franchise agreement with the City — to the Complaint. The Court notes that Adelphia's action in concealing the most relevant documents in this case calls into question Adelphia's credibility and gives the Court pause in considering Adelphia's factual assertions.
38. The City and County refiled their Application for a Temporary Restraining Order in this Court on March 28, 2002.
39. The next day, after considering Defendants' Opposition, the Court issued a Temporary Restraining Order ("TRO") and Order to Show Cause ("OSC"), enjoining Defendants from further transferring Verizon's franchise and assets or combining the two cable systems and from terminating Verizon employees. The TRO further required Verizon to continue to provide cable service to its subscribers and required Adelphia to segregate any funds received from former Verizon subscribers. See Temporary Restraining Order and Order to Show Cause entered April 1, 2002.
40. On April 2, 2002, after considering Defendants' Ex Parte Application and Plaintiffs' Opposition, the Court issued an Order modifying the TRO, allowing Adelphia to continue providing services to former Verizon customers who had already switched their service, but requiring it to provide those customers the same level of service they had received from Verizon and prohibiting it from raising rates. See Order entered April 4, 2002.
41. Adelphia filed a redacted copy of the Asset Purchase Agreement on April 10, 2002. Under the Agreement, Verizon transferred "all properties, assets and rights, tangible and intangible, of every kind, nature and description" used for Verizon's cable systems in the City and unincorporated areas of the County. Agreement at ¶ 2.1. That property includes all distribution equipment and customer devices. See id. at ¶ 2.1(b)
As with the delay in filing of the Agreement, the redacted nature of the filing casts continued doubt on Adelphia's credibility.
The Court finds that Adelphia's assumption of Verizon's contracts with multi-dwelling units, other bulk customers, and advertisers deserves significant weight. These contracts may only constitute a small fraction of Verizon's contracts, see April 12 Response at 3:7-26, but they further support the conclusion Adelphia is taking over the management of all of Verizon's cable and internet operations.
42. The Court finds it particularly telling that Adelphia accepted Verizon's obligation to pay franchise fees. See id. at ¶ 3.1(b).
The Court finds Adelphia's interpretation of this provision in its April 12 Response to be incorrect. Section 3.1(b) requires Adelphia to pay franchise fees arising out of the operation of Verizon's cable network. Only Verizon's franchise would require payment of franchise fees arising out of the operation of Verizon's network.
The Court notes, again, that it treats with skepticism Adelphia's assertions about what its own franchise agreement with the City says because Adelphia has failed to submit a copy of that agreement. However, the Court finds that the Asset Purchase Agreement is clear and does not need to look at the franchise agreement to interpret it.
43. Any conclusion of law deemed to be a finding of fact is hereby incorporated into the findings of fact.
II. CONCLUSIONS OF LAW
1. To obtain a preliminary injunction, a plaintiff must show "either: (1) a likelihood of success on the merits and the possibility of irreparable injury; or (2) that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor." Walczak v. EPL Prolong, Inc., 198 F.3d 725, 731 (9th Cir. 1999). "These two alternatives represent extremes of a single continuum, rather than two separate tests." Id. (internal quotations omitted). "Thus, the greater the relative hardship to [a plaintiff], the less probability of success must be shown." Id.
2. Plaintiffs' Complaint asserts nine causes of action against Adelphia and Verizon. Of particular significance are the first six, which allege breach of contract by Verizon, inducement of breach of contract and breach of contract by Adelphia, and violations of the Thousand Oaks Municipal Code by both Defendants.
3. The Court finds that Plaintiffs have established a significant likelihood of success on these claims.
4. Although Plaintiffs have asserted state law claims, federal law is critical to those claims, as well as to the parties' actions.
5. Prior to 1984, cable television was largely regulated at the local level, primarily through the franchise process. See id. at 963.
6. The Cable Communications Policy Act, Pub.L. No. 98-549, 98 Stat. 2779, codified at 47 U.S.C. § 521 et seq., along with two subsequent amendments, "established a national policy for the local state and federal regulation of cable; but it continued to rely on local franchising as the primary means of regulation." Time Warner, 93 F.3d at 963.
7. Federal law permits local governments to require approval of any sale or transfer of a franchise. See 47 U.S.C. § 537.
8. Plaintiffs contend that by undertaking the asset sale without their approval, Verizon and Adelphia breached their respective franchise agreements, as well as the Thousand Oaks Municipal Code. The Court agrees that Plaintiffs are likely to prevail on these claims.
9. Contrary to Adelphia's argument, nothing in § 537 requires a franchise agreement to state specifically what sort of sale or transfer is subject to the local government's consent.
The Cable Television Consumer Protection and Competition Act of 1992, Pub.L. No. 102-385, 106 Stat. 1460, and the Telecommunications Act of 1996, Pub.L. No. 104-104, 110 Stat. 56.
10. Section 537 merely requires local governments to respond within 120 days if a cable system operator seeks approval of a sale or transfer.
11. Next, Defendants contend that they were not required to seek the City and County's approval because the agreement did not contemplate the transfer of Verizon's franchise, just of Verizon's assets.
12. The Cable Communications Policy Act defines "franchise" as:
an initial authorization, or renewal thereof . . ., issued by a franchising authority, whether such authorization is designated as a franchise, permit, license, resolution, contract, certificate, agreement, or otherwise, which authorizes the construction or operation of a cable system.47 U.S.C. § 522 (9).
13. "Cable system," in turn, is defined as:
a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service . . . and which is provided to multiple subscribers within a community. . . .47 U.S.C. § 522 (7).
14. The Court agrees with Defendants that there is a difference between a "franchise" and a "cable system," but disagrees that the distinction has any significance in this case.
15. Neither a "franchise" nor a "cable system" can exist in isolation. Both Verizon and Adelphia had franchises to run systems, not licenses to provide cable service in a vacuum.
16. It is undisputed that by way of the Verizon-Adelphia agreement, Adelphia will take over Verizon's entire Thousand Oaks and Ventura systems and that Verizon will no longer provide cable service under its franchise. See Finding of Fact ¶ 31, supra.
17. More significantly, the Agreement itself reveals the broad scope of the sale. See Finding of Fact ¶ 41, supra.
18. The Agreement provides that it does not contemplate a transfer of the franchise itself. See Agreement at ¶ 2.3. But the Court is not bound by Defendants' characterization of the sale as a mere "asset transfer." See Cal. Civil Code § 3528 (the law "respects form less than substance"); First Nat'l Bank of Stockton v. Pomona Tile Mfg. Co., 82 Cal.App.2d 592, 607 (1947) ("Particularly in equity substance should be preferred to form."); Weintraub v. Weingart, 98 Cal.App. 690, 698 (1929) ("Whether or not an instrument is to be deemed an assignment of a lease is to be determined by the legal effect and not the form of the instrument. The law always respects form less than substance.").
19. It is clear to the Court, upon consideration of Defendants' own evidence and the language of the Agreement, that Adelphia has taken over, or plans to imminently take over, the ownership and management of Verizon's entire cable system authorized by the franchise agreements with the City and County.
20. Accordingly, Adelphia and Verizon have entered into an "arrangement for the management of the system" that "result[s] in a significant change of de facto control over the operations of . . . the system . . . without prior consent of the City." Complaint ¶ 14 (quoting Thousand Oaks Cable Ordinance § 4.11).
21. Nothing in section 4.11 implies that only the creation of new agency relationships require City approval. The literal terms of the section apply to the Verizon-Adelphia agreement at issue in this case. Control over management of the system, as well as ownership, was transferred in the asset sale.
"The proper interpretation of a contract is a matter of law for the court to decide." Warren v. Fox Family Worldwide, Inc., 171 F. Supp.2d 1057 (C.D. Cal. 2001) (citing Mendler v. Winterland Production, Ltd., 207 F.3d 1119, 1121 (9th Cir. 2000)).
22. Theoretically, Verizon could have transferred its ownership interest in its assets without transferring its management responsibilities for the system. By transferring both, Defendants breached the Verizon-Thousand Oaks franchise agreement.
23. Plaintiffs have established a high likelihood of success on their breach of contract claim against Verizon.
24. For the same reasons, Plaintiffs have established a high likelihood of probability of success on their breach of contract claim against Adelphia based on the allegation that Adelphia. "[a]ttempt[ed] to evade a material provision of this Cable Ordinance. . . ." Thousand Oaks Cable Ordinance § 36.1(b).
25. The Court also finds that Plaintiffs have established a high likelihood of success on their inducement of breach of contract claim against Adelphia. See Frazier, Dame, Doherty, Parrish Hanawalt v. Boccardo, Blum, Lull, Niland, Teerlink Bell, 70 Cal.App.3d 331, 338 (1977) ("The defendant must have knowledge of the contract and must have intended to induce a breach thereof."). It is undisputed that Adelphia was aware of Verizon's franchise — as it was under similar obligations — and intended to structure a deal that did not require approval.
26. The Court also finds that Plaintiffs have established a high likelihood of success with regard to Defendants' alleged breaches of the provisions of both the City and County ordinances that prohibit transfer of the "rights and obligations" under a franchise agreement without approval. See Complaint ¶ 14 (quoting Thousand Oaks Cable Ordinance § 4.1); Complaint ¶ 18 (quoting Ventura County Cable Ordinance § 7-9).
27. Adelphia and Verizon each had franchises to run systems. Adelphia's franchise only gave it the authority to run its own system. Adelphia now proposes to take on the rights and obligations conferred by the Verizon-Thousand Oaks and Verizon Ventura franchise agreements. Defendants were required to seek City and County approval before proceeding with the sale.
28. Verizon's right to go out of business, see Verizon's Response at 6-9, is irrelevant to the breach of contract question.
29. Verizon certainly had a right to go out of business, but it had to abide by its contractual obligations in doing so. It could have dealt with its financial problems in a way that comported with its franchise agreements.
30. Adelphia's First Amendment argument, that the consent requirements in the City and County arguments are unconstitutionally vague, is equally unavailing.
31. Adelphia contends that "men of common intelligence," Hynes v. Mayor of Oradell, 425 U.S. 610, 620 (1976), would not know that Adelphia and Verizon were required to obtain approval for the asset transfer. See Adelphia's Response at 20:12-19.
32. The Court agrees that the vagueness doctrine applies to the City and County cable ordinances because cable television providers are engaged in `speech' under the First Amendment." Leathers v. Medlock, 499 U.S. 439, 444 (1991); see also Charter Communications, Inc. v. County of Santa Cruz, 133 F. Supp.2d 1184, 1218 (N.D. Cal. 2001) (holding that county's standardless, "ad hoc regulatory approach" to rejecting cable franchise transfers was unconstitutionally vague).
33. As a result of arms' length negotiations between corporate entities, the transfer approval provisions in the ordinances were incorporated into the franchise agreements. Consequently, Defendants "effectively bargained away some of [their] free speech rights," Paragould Cablevision, Inc. v. City of Paragould, 930 F.2d 1310, 1315 (8th Cir. 1991), including their right to challenge the provisions as unconstitutionally void.
34. Defendants could have bargained for more limited transfer approval provisions than those embodied in the cable ordinances. Cf. id. ("Cablevision could have bargained for an unqualified right to solicit and transmit advertisements. . . . Cablevision simply failed to protect its commercial rights."). They chose not to; and the Court will hold them to the bargains they struck.
35. Additionally, the Court finds that the transfer approval provisions are not unconstitutionally vague.
36. The plain language of the ordinances put Defendants on notice that they were required to seek approval not only for a sale of the franchise itself, as an independent document, but also for a sale of any rights and obligations conferred by the franchise agreements and for a sale of management or control of Verizon's cable systems.
Adelphia's contention that the cable ordinances do not contain appropriate standards for considering transfer applications, see Adelphia Response at 18-19, is not ripe. The City and County have never been presented with a transfer application to consider.
37. Because Plaintiffs have demonstrated such a substantial likelihood of success on the merits of their claims, they need only show a reasonable possibility of irreparable injury at this second step of the preliminary injunction test.
38. Plaintiffs contend that their interest in promoting competition among cable providers in the City and County will be irreparably harmed in the absence of injunctive relief.
39. Plaintiffs have a substantial interest in "`eliminating restraints on fair competition.'" Charter Communications, Inc. v. County of Santa Cruz, 133 F. Supp.2d 1184, 1216 (N.D. Cal. 2001) (quoting Turner Broadcasting Sys., Inc. v. Federal Communications Commission, 512 U.S. 622, 633-34 (1994)); see also Time Warner Entertainment Co., L.P. v. Federal Communications Commission, 93 F.3d 957, 978 (D.C. Cir. 1996).
40. "A sufficient showing of injury to competition could support a finding of irreparable harm." American Passage Media Corp. v. Cass Communications, Inc., 750 F.2d 1470, 1473 (9th Cir. 1985).
41. The Court finds that Plaintiffs have made a sufficient showing.
42. It is undisputed that Adelphia will acquire exclusive control over cable service in the City and unincorporated areas of the County if the sale is completed.
Ultimately, Defendants may be correct that two cable operators cannot both succeed financially while competing for business in the City. However, this concern is not an appropriate issue for the Court to consider. Defendants contractually obligated themselves to seek approval of any transfer of their franchises. Plaintiffs are entitled to enforce that obligation, even if it proves not to be in their best interest.
43. Other than Plaintiffs, no third parties have expressed interest in acquiring the Verizon franchises. See Fitzgerald Decl. ¶¶ 10-11.
44. The injury to the competitive market established by the City is virtually guaranteed.
45. Additionally, the Court finds that this injury will not be compensable by a monetary award. See Los Angeles Memorial Coliseum Commission v. National Football League, 634 F.2d 1197, 1202 (9th Cir. 1980) ("It is well established that monetary injury is not normally considered irreparable.").
46. The harm from the lack of competition to an individual cable subscriber (e.g., increased rates or reduced service) might be easy to assign a monetary value. But the harm to the public is more difficult to quantify.
47. Because of the uncertainty in measuring the competitive injury from allowing Adelphia to acquire exclusive control over cable service in the City and unincorporated areas of the County, the Court finds that injunctive relief is appropriate in this breach of contract case. See Tamarind Lithography Workshop, Inc. v. Sanders, 143 Cal.App.3d 571, 577 (1983) ("the awarding of damages must be premised upon calculations, inferences or observations that are logical").
The Court has not considered the news media coverage of Adelphia's apparently deteriorating financial situation in reaching this conclusion.See Decl. of Jeffrey T. Melching Exhibits (April 7, 2002). However, the risk that Adelphia might not be able to pay a significant damage award at the time of trial certainly supports the imposition of an preliminary injunction.
48. The Court now turns to the question of the appropriate interim remedy.
49. Plaintiffs initially sought to require Verizon to continue to provide cable services in the City. See [Proposed] Order Granting Preliminary Injunction ¶ 4. They have now withdrawn that request. See Reply at 20:16-21:15.
50. Even if they had not done so, the Court would not order Verizon to go back into the cable business in the City and County. See, e.g., 8600 Associates, Ltd. v. Wearguard Corp., 737 F. Supp. 44, 46 (E.D. Mich. 1990) ("`[a] mandatory injunction to compel defendant to furnish services during the term of the lease . . . would require continuous supervision by this court. Specific performance will not be decreed under such circumstances.'") (quoting Laker v. Soverinsky, 318 Mich. 100, 104 (1947)); CBL Associates, Inc. v. McCrory Corp., 761 F. Supp. 807 (M.D. Ga. 1991).
51. "[I]t is impractical to require judicial oversight of a contract which calls for special knowledge, skill, or ability." Woolley v. Embassy Suites, Inc., 227 Cal.App.3d 1520, 1533-34 (1991).
52. This Court is in no position to oversee Verizon's provision of cable services in the City and County.
53. Additionally, Verizon has a First Amendment right to refrain from speaking, see Cable Alabama Corp. v. City of Huntsville, 768 F. Supp. 1484, 1501-02 (N.D. Ala. 1991), including a withdrawal from the cable business.
54. Additionally, both because of the extensive court supervision that would be required and because the standard for imposing a mandatory injunction is so much higher than for a prohibitory injunction, see Stanley v. Univ. of Southern Cal., 13 F.3d 1313, 1319-20 (9th Cir. 1994), the Court is not prepared to order Verizon to sell its franchise to Plaintiffs or some unknown third-party.
55. The Court has no doubt that it will be difficult and expensive for Verizon and Adelphia to unwind their transaction at this late date. However, by keeping the transfer a secret until its effective date, Defendants ran the risk that they would be forced to undo what they have done so far. Accordingly, the Court gives little weight to the hardship that will be endured by Defendants as a result of granting injunctive relief. Cf. U.S. v. Marine Shale Processors, 81 F.3d 1329, 1358-59 (5th Cir. 1996) ("[A] court need not balance the hardship when a defendant's conduct has been willful.").
56. Lastly, although Plaintiffs have demonstrated a reasonable possibility of irreparable harm to the public's interest in a competitive cable marketplace, the Court's paramount concern is that City and County residents continue to have access to cable service.
57. Accordingly, the Court will not enjoin Adelphia from soliciting former Verizon subscribers. To do so would leave potential new customers without access to any cable television or high-speed internet access through cable.
58. Any finding of fact deemed to be a conclusion of law is hereby incorporated into the conclusions of law.
III. PRELIMINARY INJUNCTION
Based on the foregoing, the Court hereby ORDERS as follows:
1. Defendants are ENJOINED from transferring ownership of Verizon's Americast System in the City and County from Verizon to Adelphia.
2. Defendant Verizon is ENJOINED from transferring to Adelphia and Defendant Adeiphia is ENJOINED from accepting from Verizon the ownership of any and all of the assets previously or currently used to provide cable services to subscribers under the Thousand Oaks-Verizon franchise and the Ventura-Verizon franchise, including, but not limited to, Verizon's Americast System as it existed prior to February 28, 2002.
3. Defendants are ENJOINED from taking any further actions in execution of their agreement to transfer the Thousand Oaks-Verizon franchise and the Ventura-Verizon franchise, a described in the Complaint on file herein, from Verizon to Adelphia.
4. Defendants Adelphia and Verizon are ORDERED to maintain separate management of Verizon and Adelphia franchises in the City and County, and attendant assets of those franchises (as the franchises and assets existed prior to February 28, 2002), except as necessary for Adelphia to provide uninterrupted cable service to the residents of the City and County.
5. Defendants are ENJOINED from taking any action to operationally combine the Adelphia and Verizon cable systems in the City and County, except as necessary for Adelphia to provide uninterrupted cable services to residents of the City and County.
6. Adelphia is ORDERED to return ownership of any assets in the City and County acquired from Verizon as a result of the sale to the ownership, control, and management of Verizon. Adelphia may continue to manage the assets to the extent necessary to avoid disruption in service until Verizon chooses to reenter the market or sell the assets in compliance with their franchise obligations or until this Order is lifted.
7. Adelphia is ENJOINED from charging former Verizon subscribers in the City and County rates higher than those charged by Verizon.
8. Adelphia is ENJOINED from reducing the level and range of service of former Verizon subscribers in the City and County from that provided by Verizon.
9. Adelphia is ORDERED to segregate any funds received from subscribers in the City and County who formerly received service from Verizon but transferred their service to an Adelphia account at any time on or after February 28, 2002.
10. Adelphia is ORDERED to segregate any funds received from former Verizon subscribers in the City and County in a separate trust account.
11. In segregating funds as required by paragraphs (9) and (10), Adelphia may achieve such segregation by segregating a percentage of funds received from subscribers in the City of Thousand Oaks and the unincorporated areas of Ventura County that corresponds to the percentage of subscribers in those areas who were Verizon subscribers as of February 27, 2002.
12. Defendants are ORDERED to permit Plaintiffs, within 10 days of the date of this Order, and upon 48 hours written notice to Defendants, to conduct an inspection of the current state of the Verizon and Adelphia systems in the City and County by authorized representatives of Plaintiffs, including, but not limited to, access to all system records, contracts, personnel, and facilities.
13. The bond previously filed in this action in conjunction with the Temporary Restraining Order is sufficient and need not be supplemented.
If Verizon chooses not to re-enter the cable market, there would appear to be no need to rehire management and other personnel who have been terminated.
Because Verizon has a right to withdraw from the local cable market, it is under no obligation to resume using these assets and is free to continue to attempt to sell its franchise in a way that complies with its obligations to the City and County.
Adelphia should, of course, feel free to offer improved service and lower rates.
It is so ORDERED.