(emphasis added). Id. The opinion reiterated that the 900 settlement should be modified to state: "The tariff should not apply to the billing and collection of services which contain harmful matter. Billing and collection for these services are a matter for contractual arrangement between the telephone corporation and the [information provider]." Id. at 34-35.
By conditioning approval of the overall 900 settlement on PacBell's willingness to remove harmful matter providers from the proposed tariff, the CPUC gave PacBell a powerful economic incentive to distance itself from the harmful matter providers. See id. (setting forth the ways in which the proposed 900 settlement had to be modified to comply with the new statutory scheme).
Evidence indicates that the CPUC and PacBell worked closely together fine-tuning the 900 regulatory scheme. N. Selby dec. paras. 25-27, Aug. 16, 1989.
The end result was that entry into the potentially lucrative 900 business was conditioned on the terms imposed by the CPUC. At the same time, PacBell continued doing everything it could on the legislative and regulatory fronts to enable it to avoid entering into "contractual arrangement[s]" with the harmful matter providers.
Thus, when the CPUC applied the provisions of the bill PacBell sponsored to the tariff that PacBell had applied for, PacBell achieved its goal -- the removal of state regulatory authority over some of its services. This allowed PacBell to attempt to cut off billing and collection services to the harmful matter providers. Sen. Comm. Report, supra, at 2.
Given these facts, plaintiffs have demonstrated sufficient state "encouragement" of the telephone companies' conduct to warrant a finding of substantial likelihood of success on the merits on the state action issue. Today, in California, a phone company's decision not to contract with a harmful matter provider is a decision that appears fairly attributable to the state.
I. Background law.
The fourteenth amendment to the Constitution provides a check on government conduct, not private conduct. It incorporates most of the protections of the Bill of Rights and makes them applicable to the states. See Near v. Minnesota, 283 U.S. 697, 701, 75 L. Ed. 1357, 51 S. Ct. 625 (1931) (first amendment held applicable to the states).
Plaintiffs alleged that defendants have infringed upon their free speech rights. To prove a violation of their first amendment rights, plaintiffs must show they were harmed by "state action," not by private conduct that abridged their rights. See Burton v. Wilmington Parking Authority, 365 U.S. 715, 721-22, 6 L. Ed. 2d 45, 81 S. Ct. 856 (1961); 2 R. Rotunda, J. Nowak, J. Young, Treatise on Constitutional Law: Substance and Procedure § 16.1 (1986). In a case like this one, in which the plaintiff alleges that a private party's conduct must be attributed to the state because it involved "state action," the plaintiff must show that the state "has provided such significant encouragement, either overt or covert, that the choice must in law be deemed to be that of the State." Blum v. Yaretsky, 457 U.S. 991, 1004, 73 L. Ed. 2d 534, 102 S. Ct. 2777 (1982) (emphasis added) (citations omitted).
How much encouragement is enough? A careful examination of the facts, in light of the applicable precedents, compels this Court to conclude that "enough" is present here to warrant the preliminary injunction already in effect.
II. Prior decisions on "free choice" schemes.
The phone companies argue that the "contractual arrangement" language of section 2884.2 gives them the "free choice" to cut off billing and collection services if they so choose. "Free choice" schemes have a long and insidious history in constitutional law.
The free choice plan that was struck down in Reitman v. Mulkey, 387 U.S. 369, 18 L. Ed. 2d 830, 87 S. Ct. 1627 (1967), sheds light on this case. Reitman involved an amendment to the California constitution that attempted to bar the state from abridging the rights of homeowners to deal or not to deal with anyone they saw fit, in their "absolute discretion," when selling or leasing their homes. The effect of the amendment would have been to repeal California's Unruh Act, which had outlawed most forms of private racial discrimination. The California Supreme Court concluded that the only conceivable purpose of the amendment was to authorize the perpetuation of private discrimination in the housing market, thereby unconstitutionally involving the state in racial discrimination. The United States Supreme Court agreed.
Here the California court, armed as it was with the knowledge of the facts and circumstances concerning the passage and potential impact of § 26, and familiar with the milieu in which that provision would operate, has determined that the provision would involve the State in private racial discriminations to an unconstitutional degree. We accept this holding of the California court.