CENTURY FEDERAL, INC. v. CITY OF PALO ALTO, CAL. No. C-85-2168 EFL.
648 F.Supp. 1465 (1986)
CENTURY FEDERAL, INC., a California Corporation, Plaintiff, v. CITY OF PALO ALTO, CALIFORNIA, a Municipal corporation; City of Palo Alto Utilities, a Municipal utility; City of Menlo Park, California, a Municipal corporation; and City of Atherton, California, a Municipal corporation, Defendants.
United States District Court, N.D. California.
December 3, 1986.
Harold R. Farrow, Farrow, Schildhause, Wilson & Rains, Oakland, Cal., for plaintiff.
Jerome B. Falk, Jr., Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, Cal., for Palo Alto and Atherton.
John R. Cosgrove, Jorgenson, Cosgrove, Siegel & McClure, Menlo Park, Cal., for Menlo Park.
ORDER GRANTING PARTIAL SUMMARY JUDGMENT
LYNCH, District Judge.
This action involves an aspiring cable television operator's first amendment challenge to the defendant municipalities' use of an exclusive franchising arrangement to limit to one the number of cable operators granted access to those facilities necessary to install cables within the defendants' boundaries. Plaintiff now moves for an order granting partial summary judgment
Plaintiff Century Federal, Inc., is an aspiring cable television (hereinafter "CTV") operator. The defendants (hereinafter "the Cities") are three California municipalities, Atherton, Menlo Park, and Palo Alto, and a utility company owned by Palo Alto. Plaintiff attempted to enter the CTV business in each of the Cities, but was refused a business license and was told that it must participate in the franchise selection process conducted by Palo Alto on behalf of all the Cities. Plaintiff also sought permission to use the utility poles owned by the Pacific Telephone and Telegraph Company, the Pacific Gas and Electric Company, and the defendant City of Palo Alto Utilities, but was refused "pole attachment services" because it had no CTV operating franchise.
The franchise selection process conducted by the Cities had two parts. First, the Cities issued a Request for Proposals (hereinafter "RFP"). This document specified the minimum requirements that an applicant must meet in order to be considered for a franchise.
The second phase of the selection process involved negotiations with one or more of the so-called most qualified applicants. Although the RFP guidelines expressly referred to the granting of a "nonexclusive" franchise, implying that the Cities might grant a franchise to more than one CTV operator, it is undisputed that the Cities intended to grant a franchise to only one operator, at least initially. See Central Telecommunications, Inc. v. TCI Cabletelevision, Inc.,
Of the four CTV operators who answered the RFP, which did not include plaintiff, the Cities targeted two for further negotiations. On October 7, 1985, the Cities awarded a franchise to Cable Coop, which,
Rather than participate in the RFP, plaintiff originally filed suit in this Court in September 1983, alleging that the franchising process as a whole violated the antitrust laws and the first amendment. See Century Federal, Inc. v. City of Palo Alto,
Subsequent to the above rulings, in January 1985, in response to the passage of the Cable Communications Policy Act of 1984, 47 U.S.C. sections 521-611 (Supp.1986), this Court dismissed plaintiff's original first amendment claims without prejudice.
In early March 1985, however, the Ninth Circuit decided Preferred Communications, Inc., v. City of Los Angeles,
Within a few days after the release of the Ninth Circuit's decision, plaintiff filed the instant action, reasserting its first amendment claim.
After the United States Supreme Court granted certiorari on the Preferred I decision, this Court stayed the disposition of the instant action pending the Supreme Court's decision. In City of Los Angeles v. Preferred Communications, Inc., ___ U.S. ___, 106 S.Ct. 2034, 90 L.Ed.2d 480 (1986) (hereinafter Preferred II), the Supreme Court affirmed the judgment of the Ninth Circuit "on a narrower ground," id. 106 S.Ct. at 2036, holding only that a CTV operator "seeks to engage [in activities that] plainly implicate the First Amendment," id. at 2037, and refusing to decide the applicable first amendment standard solely on the pleadings. Id. The Court left open the question of "whether the characteristics of cable television make it sufficiently analogous to another medium to warrant application of an already existing standard or whether those characteristics require a new analysis." Id. at 2038 (Blackmun, J., concurring).
II. Standard of Review on a Motion for Summary Judgment
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Consequently, the "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., ___ U.S. ___, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (emphasis in original). The Supreme Court has described the district court's review of the
Accordingly, this Court's initial inquiry must be on the materiality of the various factual questions. In the instant case, the Court must review each of the governmental interests alleged by the Cities and determine which of these, if any, the substantive law recognizes as important or substantial so as to justify the resultant impact on the first amendment rights of potential CTV operators. Only after a determination that an interest is important or substantial can the Court reach the issue of whether genuine issues of fact exist on the question of whether the franchising process "furthers" that interest.
III. Cable Television and the First Amendment
The United States Supreme Court has left no doubt that a CTV operator is a speaker entitled to first amendment protection. Preferred II, ___ U.S. ___, 106 S.Ct. 2034, 2037, 90 L.Ed.2d 480 (1986). The Court did not state, however, the degree of protection to which a CTV operator is entitled or the amount of governmental regulation of that medium permissible under the first amendment. The threshold issue on this motion, therefore, is whether the first amendment allows the government the same wide latitude in regulating the CTV industry as it allows in the broadcast medium, see Red Lion Broadcasting Co., Inc. v. Federal Communications Commission,
As defendants' lead counsel admitted at oral argument, if this Court were to apply the same degree of protection that more traditional forms of the media receive, the Cities' restriction on access to its residents obviously would violate the first amendment. We recognize that "differences in the characteristics of new media justify differences in the First Amendment standards applied to them." Red Lion, 395 U.S. at 386, 89 S.Ct. at 1805. Application of a lesser standard of protection, however, is an exception to the rule that must be justified by a particular difference. When the Supreme Court was faced with the question of whether a lesser first amendment standard applied to films, it stated that "the basic principles of freedom of speech and the press, like the First Amendment's command, do not vary. Those principles, as they have frequently been enunciated by this Court, make freedom of expression the rule. There is no justification in this case for making an exception to that rule." Joseph Burstyn, Inc. v. Wilson,
A. Lack of Physical Scarcity in the Cable Television Medium
The Ninth Circuit has recognized that the greater degree of governmental regulation of broadcasting rests on the physical scarcity of radiowaves. Preferred I, 745 F.2d 1396, 1403 (9th Cir.1985), aff'd, ___ U.S. ___, 106 S.Ct. 2034, 90 L.Ed.2d 480 (1986). As this Court noted earlier in the instant case, "the electromagnetic spectrum is simply not physically capable of carrying the messages of all who desire to speak over it. This principle has been reaffirmed many times." Century Federal, Inc. v. City of Palo Alto,
Notwithstanding its application to the broadcast medium, the Seventh and D.C. Circuits have expressly concluded that the "physical scarcity rationale" is irrelevant to an evaluation of government regulation of cable television. Quincy Cable TV, Inc. v. Federal Communications Commission,
The opinions from these two Circuits strongly suggest that physical scarcity could never arise in a cable television setting. The Ninth Circuit, however, expressly left open the question of how a municipality should "allocate access to poles and conduits to competing cable systems when these structures are incapable of accommodating all those seeking access," because plaintiff had alleged that space was available and the court assumed that fact to be true. Preferred I, 754 F.2d at 1404.
In any event, this Court also finds it unnecessary to address the issue of whether physical scarcity could ever arise in the CTV medium because defendants admit that there is no physical scarcity in the instant case.
Consequently, the characteristic in broadcasting that justifies increased governmental intrusion in that medium is absent in the instant case.
B. Natural Monopoly as a Justification
Most of the argument on the instant motion centered around whether the natural monopoly or economic scarcity rationale justified a greater degree of government regulation than allowed in a newspaper context. Although the Ninth Circuit in Preferred I briefly commented "[i]n passing" on the natural monopoly argument, it did not decide the issue because the court accepted as true plaintiff Preferred's allegation on the economic feasibility of competition for cable services in the Los Angeles area. Id. The court seemed to imply, however, that a natural monopoly would not be a justification for exclusive franchising. See Central Telecommunications, Inc. v. TCI Cablevision, Inc.,
In the instant case, the issue must be confronted because the parties have hotly contested the question of whether the CTV market in the proposed service areas is a natural monopoly. The Cities envision a trial on this economic question, with both sides presenting expert testimony, based upon studies and statistics, opining on the likelihood that the relevant market is a natural monopoly. According to the defendants, if the trier of fact finds that there is a reasonable likelihood that the market is a natural monopoly, then the Cities should be able to institute their franchising scheme.
Before determining whether there is a triable issue of fact on the question, however, this Court must first decide whether
The Cities' argument on the materiality of the natural monopoly rationale is basically as follows: because the CTV market in our service area is a natural monopoly, it shares a characteristic analogous to the physical scarcity trait in the broadcasting medium, which results in an inherent limitation on the number of possible speakers. Such a trait warrants government regulation of the number and identity of the speakers, which ensures the enhancement of first amendment values.
The Supreme Court rejected this economic scarcity rationale in the context of newspapers, however, in Miami Herald Publishing Co. v. Tornillo,
This Court recognizes that newspapers, the most traditional form of the media, are historically the source of most of the debate on politics and government that lies at the core of first amendment values. Id. at 257-58, 94 S.Ct. at 2839-40. Yet, just as a "newspaper is more than a passive receptacle or conduit for news, comment, and advertising," id. at 258, 94 S.Ct. at 2840, the Supreme Court has stated that cable operators exercise a "significant amount of editorial discretion regarding what their programming will include." Preferred II, 106 S.Ct. at 2037 (quoting Federal Communications Commission v. Midwest Video Corp.,
The most extended discussion of the issue was that of the Tenth Circuit in Community Communications, 660 F.2d at 1376-79. The Tenth Circuit distinguished Miami Herald by tying the natural monopoly characteristics of the CTV medium to the burden a cable system causes on public utility facilities and streets. Noting that the economic scarcity in Miami Herald was "unrelated to the disruptive use of the public domain requiring a government license," id. at 1379, the court found that, in contrast, a CTV operator "must significantly impact the public domain in order to operate; without a license, it cannot engage in cable broadcasting to disseminate information." Id.
The weakness in the Tenth Circuit's reasoning stems from the lack of a link between a distinctive characteristic of cable television, e.g., the disruption to the public domain, and the proposed government regulation. The fact that a CTV system can potentially disrupt the streets might justify certain government regulations aimed at minimizing such disruption. As the Ninth Circuit noted, however, "[the Tenth Circuit's] statement is too broad. It suggests that simply because cable's disruption of the public domain gives rise to a need for licensing, it would also justify the monopoly the City seeks to create by its auction process." Preferred I, 754 F.2d at 1405.
The Seventh Circuit's opinion in Omega is similarly unpersuasive. The court acknowledged that "while today most newspaper markets are natural monopolies, no one thinks that entry into those markets could be regulated without creating profound First Amendment problems." Omega, 694 F.2d at 128. Nevertheless, the court summarily concluded that the "apparent natural monopoly characteristics of cable television provide ... an argument for regulation of entry." Id. at 127-28. The opinion was devoid of any reason why such a characteristic should make any difference in the cable television setting when it does not in the newspaper context.
Finally, while this motion was under submission, the Cities cited to this Court the recent Eighth Circuit decision in Central Communications,
Like the Seventh and Tenth Circuits, the Eighth Circuit did not explain which characteristics of the CTV medium justify application of less protection than afforded to the nonbroadcasting media. Clearly, the first amendment will not tolerate the government's suppression of speakers, even on a content-neutral basis, in the newspaper, movie, and book industries on the ground that the one speaker granted access provides the greatest variety of articles, movies or publications at the lowest price. It is also clear under Miami Herald that the fact that the newspaper, movie or book markets in a given community are a natural monopoly does not justify greater governmental regulation of such first amendment speakers.
In an age when most people receive their daily news via the television, that medium has established a role as critical to the free flow of ideas and information in this society as any of the more traditional media. The physical scarcity that justified the government's unparalleled intrusion into the broadcasting medium simply does not exist in this case. The Supreme Court has always stressed that "[e]ach medium of expression ... must be assessed for First Amendment purposes by standards suited to it...." Southeastern Promotions, Ltd. v. Conrad,
IV. Application of the O'Brien Test
Concluding that the allowable degree of governmental regulation is not fixed by physical or economic scarcity does not mean that all regulation of CTV operators is invalid. Preferred I,
The propriety of governmental regulations of noncommunicative aspects of speech is judged by the standard enunciated in United States v. O'Brien,
To reiterate, the only government regulation addressed on this motion is that part of the Cities' franchising process that limits to one the number of CTV operators given access to the facilities necessary to install a cable system.
As to the first step of the O'Brien test, this Court finds that, as a matter of law, a franchise arrangement is within the Cities' constitutional power of government.
As noted earlier, the Cities have alleged five interests to satisfy the second
These four interests are inherently related to the natural monopoly rationale. Essentially, the Cities argue that if there is a reasonable probability that their service area will economically support only one CTV operator, then they should be able to choose, at the outset, that operator who will provide the highest quality service and use the offer of an exclusive franchise as a plum to bargain for certain concessions, e.g., access channels, that they might not be able to acquire if an operator knew that it would have to compete with other cable providers. The existence of a state-of-the-art CTV operator that provides quality service, including community and commercial access channels, to all areas within their boundaries best ensures, the Cities argue, that the values of the first amendment will be furthered because the Cities' residents will have expanded opportunities to receive diverse sources of information.
The Cities' position is analogous to one taken by municipalities defending antitrust suits by cable operators. They have argued, as cities have successfully done with such industries as water and electricity, that regulation of natural monopolies maximizes economic efficiency, and consequently, consumer welfare. Judge Posner of the Seventh Circuit explains this reasoning in the CTV setting:
Omega Satellite Products Co. v. City of Indianapolis,
The Cities essentially argue that the same is true in the context of the first amendment. Just as the regulation of water and electric companies — or CTV operators as the case may be — enhances consumer welfare through economic efficiency, the regulation of CTV operators furthers the purposes of the first amendment. But in
The paternalistic role in the first amendment that the Cities envision for government is simply inconsistent with the purpose and goals of the first amendment. The Cities nevertheless contend that such a role is consistent with the Supreme Court's often-cited passage that, under the first amendment, it is the rights of viewers and listeners that is paramount, not the rights of speakers. Red Lion Broadcasting Co. v. Federal Communications Commission,
Consequently, the factual questions presented by the Cities on the above four alleged interests are immaterial under the applicable substantive law, and therefore, cannot give rise to issues of fact that can defeat plaintiff's motion for summary judgment.
The analysis is different, however, on the Cities' first alleged interest, disruption to the public domain. In Preferred I, the Ninth Circuit recognized that a "City has legitimate interests in public safety and in maintaining public thoroughfares." Preferred I, 754 F.2d at 1406; see also Community Communications Co. v. City of Boulder,
The above finding that, under the applicable substantive law, the Cities have an important or substantial governmental interest in minimizing disruption to the public domain does not end the inquiry. For purposes of this motion, the Court next must determine whether the Cities have offered sufficient evidence to create a geniune issue of fact on the question of whether the proposed limitation on access "furthers" that governmental interest. See O'Brien, 391 U.S. at 377, 88 S.Ct. at 1679 (the second step is whether the challenged regulation "furthers" an important or substantial governmental interest). That is, have the Cities offered sufficient evidence on the degree of disruption that will result if they initially allow more than one CTV operator to lay cables?
Both sides presented exhaustive evidence on the disruption that results from the installation and maintence of cable systems, which run underground and on telephone poles. The Cities presented declarations
The Cities made no showing, however, on how much more disruptive granting access to more than one CTV system would be when multiple systems are installed simultaneously as opposed to the installation of a single system. What is at issue here is a facial challenge to a franchising scheme that grants access to the first CTV operator to lay cables within a particular service area. Consequently, the Cities cannot justify a limitation to one on the ground that, in general, a CTV system is disruptive to the public domain. The Cities are willing to allow the installation of the first system. The question must then become: how is the government's interest in the public domain effected if access is granted initially to more than one system? To this, the Cities provide no answer.
The Cities address this issue only by arguing that unless two or more CTV systems are installed simultaneously, the disruptive burden will be increased whenever more than one system is constructed within the same service area. See Defendants Palo Alto and Atherton's Memorandum in Opposition, pp. 17-18. This may be so. But such a contention is incongruous to the facts of this case because when the RFP was issued no cables had previously been installed, the Cities intended to allow installation of one system, and simultaneous installation of multiple systems was possible. This is not a case in which one system has already been fully installed and another CTV operator subsequently seeks to install another system over the same public domain. If disruption can be minimized by simultaneous installation, then what prevents the Cities from taking advantage of that fact with proper time, place, and manner restrictions? Indeed, plaintiff has stated that requiring simultaneous installation would be a valid government regulation. See Plaintiff's Reply Memorandum, pp. 13-14.
Because the Cities have made no showing that initially allowing access to more than one operator will implicate or "further" their important or substantial interest in regulating disruption to the public domain, this Court finds that, as a matter of law, there are no genuine issues of material facts under the second step of the O'Brien test.
We have not intended to suggest in this decision, nor do we read the Ninth Circuit's Preferred I opinion as holding, that the Cities necessarily have to open their cable facilities to all comers regardless of size, shape, quality or qualifications. Accord Pacific West Cable Co. v. City of Sacramento,
According to the Cities, their entire franchising scheme depended upon limiting initial access to one CTV operator. Therefore, the Court is now unsure as to what, if any, issues in this case are still unresolved other than damages. Accordingly, the Court orders that a status conference in this case be held at 3:30 p.m. on February 4, 1987. The Court further orders that three weeks prior to that date, plaintiff file a status conference statement listing the remaining issues in this case. One week thereafter, the defendant is to file its version of the same status conference statement.
IT IS SO ORDERED.
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