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City of Glendale v. Marcus Cable Associates, LLC

California Court of Appeals, Second District, Fifth Division

December 1, 2014

CITY OF GLENDALE, Plaintiff, Cross-defendant and Appellant,
v.
MARCUS CABLE ASSOCIATES, LLC, Defendant, Cross-complainant and Appellant.

APPEAL from a judgment of the Superior Court of the County of Los Angeles, No. EC051903 Donna Fields Goldstein, Judge.

Page 1360

[Copyrighted Material Omitted]

Page 1361

COUNSEL

Rutan & Tucker, William M. Marticorena, Jeffrey T. Melching and Michelle D. Molko for Plaintiff, Cross-defendant and Appellant.

Coblentz Patch Duffy & Bass, Richard R. Patch, Ann E. Johnston and Allison L. Ehlert for Defendant, Cross-complainant and Appellant.

Page 1362

OPINION

MOSK, Acting P. J.

INTRODUCTION

Defendant, appellant, and cross-respondent Marcus Cable Associates, LLC, doing business as Charter Communications, Inc., (Charter) appeals from orders granting summary adjudication in favor of plaintiff, respondent, and cross-appellant City of Glendale (Glendale); and Glendale appeals from an order granting summary adjudication in favor of Charter and from certain portions of a judgment in favor of Charter entered after trial. The disputes arise out of a cable television services system operated by Charter within Glendale and the free public, educational, and government-affairs (PEG) requirements in connection with such services.

We hold that federal law precluded Charter from obtaining a declaration of a right of offset against future franchise payments to Glendale for past overpayments of PEG fees to Glendale; Glendale did not breach any obligation in connection with its refusal to approve Charter’s request to realign channel numbers for PEG programming that was broadcast on Charter’s cable television system in Glendale; Charter had no further obligation to provide free video programming and cable modem services to Glendale; the trial court did not err in concluding that Charter had not conveyed to Glendale a permanent right to possess or use the fiber capacity for government intranet communications—an institutional network or “I-Net”[1]—and Charter established that Glendale improperly and contrary to law used PEG fees. Thus, we affirm the judgment.

BACKGROUND

Glendale filed a complaint and request for a temporary restraining order to prevent Charter from realigning Glendale’s PEG channel numbers. Charter answered and filed a cross-complaint. In the operative third amended cross-complaint, Charter sought declarations that it had no obligation to provide Glendale with free video programming services and free cable modem services or with free I-Net services; recovery of possession and control of the I-Net and damages for wrongful possession and detention of the I-Net; a declaration that Charter had the right to realign Glendale’s PEG channels; a declaration that Glendale was unlawfully using PEG fees; and a declaration that Charter had a right to offset past PEG fee overpayments against future franchise fee payments.

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A. Summary Adjudication Issues

Glendale filed a motion for summary judgment or summary adjudication on its complaint, and the parties filed cross-motions for summary adjudication on Charter’s operative cross-complaint. Following briefing and a hearing, the trial court issued a minute order adopting its written tentative ruling on the parties’ respective motions as the final ruling of the court, as amended by the text of the minute order. The facts relevant to the trial court’s summary adjudication rulings are set forth below. [2]

1. Declaration of Right to Offset

In December 2007, Charter was granted a state franchise that became effective in January 2008. Glendale established a franchise fee for Charter of percent of Charter’s annual gross revenues and a PEG fee of 2 percent of Charter’s annual gross revenues, for a total annual fee obligation of 7 percent of Charter’s annual gross revenues. Charter collected the franchise and PEG fees from its subscribers and included those fees as separate line items on its subscribers’ bills.

Charter sought a declaration in its fourth cause of action that Glendale improperly used the fees it collected for PEG operating costs resulting in an overpayment and a declaration in its fifth cause of action that Charter was entitled to deduct its PEG fee overpayments from future franchise fee payments. The trial court denied Charter’s motion for summary adjudication as to whether Glendale improperly used the PEG fees, determining that there were triable issues of fact. The trial court also ruled on the cross-motions for summary adjudication that as a result of federal law, Charter was not entitled to a declaration that it could offset past overpayments of PEG fees against future franchise payments to Glendale.

2. Reassignment of PEG Channels

In 2009, Charter notified Glendale of a planned alteration of the location of Glendale’s PEG channels as follows: (a) primary government access channel 6 moving to channel 3; (b) educational channel 15 moving to channel 95; (c) secondary government access channel 16 moving to channel 97; and (d) additional government access channel 21 moving to channel 32. Glendale refused to agree to the proposed channel realignment.

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Charter claimed in its third cause of action that Glendale had breached an implied covenant of reasonableness by refusing to approve the channel realignment. The trial court granted Glendale’s motion for summary adjudication, ruling that state law gave Glendale “absolute discretion” in determining whether or not to agree to an operator’s request for a reassignment of PEG channels.

3. Free Video Programming and Free Cable Modem Services

In January 1995, the predecessor of Charter entered into a local franchise agreement with Glendale (Glendale franchise) under which Charter’s predecessor was granted authority to construct and operate a cable television system within Glendale. In October 1995, Glendale approved the transfer of the Glendale franchise to Charter. The Glendale franchise was for a 10-year term that expired in 2005.

Paragraph 12 of the Glendale franchise required Charter to provide Glendale with free cable services to public buildings, including cable drops for residential cable to specified buildings and facilities and upstream capacity from the specified buildings and facilities “to allow live broadcasting and rebroadcasting from said sites and facilities.” Paragraph 14(c) of the Glendale franchise also required Charter to provide Glendale with an I-Net that would connect certain specified public buildings to “the activated return path of the cable television system” so as to “allow simultaneous insertion of five (5) audio/video/data programming sources into the return path from each designated location, the transmission of said programming to [any of the specified] building facilit[ies]..., the transmission of said programming to the head end and the simultaneous retransmission of said programming over the Residential Network upon completion of construction.”

In or about 1999, a dispute arose between Charter and Glendale concerning a change in the corporate control of Charter’s parent entity and certain franchise compliance issues. In September 1999, Charter and Glendale entered into a settlement and transfer agreement (settlement agreement) that resolved the corporate control and franchise compliance disputes and authorized Charter to continue to provide cable services in Glendale following the change in corporate control.

Paragraph 10 of the settlement agreement stated that Charter must provide or cause to be provided “free High-Speed Internet Access Service installation, modem and monthly service... on a stand-alone or network basis... to [specified public] buildings....” Paragraph 12 of the settlement agreement provided that Charter was required, inter alia, to “complete and activate Government and Institutional [video] drops” at specified public buildings, and

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To “complete and activate upstream and downstream institutional network... connections by way of fiber optic cable” to certain public buildings. Charter provided the upstream and downstream network functions required under paragraph 12 of the settlement agreement by delivering capacity on fiber optic strands that are contained in the fiber bundle that Charter used to provide residential services. Paragraph 11 of the settlement agreement provided, in part, “[Charter’s] completion of the cable connections at the [specified] public, governmental and school locations... shall be deemed compliance... with the Franchise requirements to connect public, governmental and school buildings as required by Section 12 and Section 14(c) of the Franchise.” Paragraph 6 of the settlement agreement provided that if Charter violated the settlement agreement, it “shall be deemed to be a violation” of the Glendale franchise, and Glendale would be authorized to invoke the liquidated damages provision of the franchise agreement for any such violation.

Charter and Glendale had discussions about the terms and conditions under which the Glendale franchise would be renewed at the end of its term, but no agreement was reached by the parties for the renewal of the Glendale franchise. Charter applied for and was granted a state franchise pursuant to the Digital Infrastructure and Video Competition Act of 2006 (the State Cable Act)[3] on December 13, 2007, effective January 2, 2008. Charter’s service area under the state franchise included Glendale. As of January 2, 2008, the Glendale franchise was replaced by the state franchise. The stated term of the Glendale franchise had expired at the time the state franchise was issued.

In connection with the present dispute, Glendale and Charter disagreed as to whether (i) Charter was obligated to provide Glendale with free use of the I-Net in perpetuity; (ii) Glendale possessed an ownership interest in the I-Net or should return possession and control of the I-Net to Charter; (iii) Glendale was obligated to compensate Charter for past use of the I-Net; and (iv) Charter was obligated under the settlement agreement to provide certain public buildings with cable modem service at no charge for as long as Charter provided video services within Glendale.

As to Glendale’s first cause of action, and the cross-motions for summary adjudication, the trial court granted summary adjudication to Charter that it had no duty to provide free video programming or free cable modem services to Glendale. The trial court, however, denied summary adjudication on whether Charter had conveyed to Glendale a permanent right to possess or use the fiber capacity that made up the I-Net on the ground that there were triable issues of fact on this issue.

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B. Trial

Following the trial court’s rulings on the parties’ summary judgment and summary adjudication motions, the following issues remained for trial on the merits: Charter’s request for a declaration concerning its continuing duty to provide free I-Net services; Charter’s claim for recovery of the I-Net and damages for past use of the I-Net; Glendale’s claim that Charter had given it a permanent right of possession or use of the I-Net—part of the first and second causes of action in Charter’s cross-complaint—and Charter’s request for a declaration that Glendale had used PEG fees for operating costs and therefore had collected from Charter an unlawful franchise fee—the fourth cause of action in Charter’s cross-complaint. A trial ensued, after which the trial court rendered a statement of decision.[4] Set forth below are the pertinent portions of the trial court’s findings of fact after trial.

1. I-Net Obligations

On or about September 7, 1999, Charter and Glendale entered into a settlement agreement that resolved disputes over the change of control and franchise compliance issues that had arisen between the parties, including the dispute over the unfinished I-Net. The trial court found that Charter had not conveyed to Glendale a permanent right to possess or use the I-Net. In that connection, the trial court considered the following evidence and made the following findings.

a. The Parties’ Understanding of the Meaning of the I-Net Provision in the Settlement Agreement

Glendale argued that notwithstanding the absence of any conveyance or dedication language in the settlement agreement itself, the parties to that agreement had a “mutual understanding” that Charter was giving to Glendale an indefeasible right of use for certain portions of the fiber contained in Charter’s cable system. The trial court found, however, that Glendale had introduced no evidence of such an understanding or agreement. The trial court also ruled that Charter could not obtain an order entitling it to recover property related to the I-Net or compensation for Glendale’s use of fiber capacity.[5]

Two of Charter’s witnesses who were involved in the negotiations testified that prior to the parties’ execution of the settlement agreement, Glendale did not ask that Charter provide it with ownership of, or an indefeasible right of

Page 1367

use of, some portion of its cable system for purposes of Glendale’s I-Net. Nor, according to that testimony, did Charter agree to such transfer. Rather, both witnesses understood that Charter was agreeing in the settlement agreement only to give to Glendale the right to use capacity on Charter’s cable system for the remaining term of the Glendale franchise or any extension of that franchise term.

According to the trial court, Glendale did not contradict this testimony with any credible evidence. Glendale’s witness, Ms. Christine Sansone, a Glendale employee, testified that she understood that under the settlement agreement, Glendale would have some sort of indefeasible right to use the I-Net fiber optic cable. Yet, when the trial court asked her directly whether there “was any discussion regarding what we have called ownership or—ownership of the fibers”—or whether Charter represented that it would “dedicate the fibers to the City, ” Ms. Sansone responded that she did not recall those words ever being used in the negotiations.

Moreover, two staff reports prepared by Ms. Sansone and submitted to the Glendale City Council were inconsistent with her trial testimony that an agreement was reached by the parties for Charter to give to Glendale some form of ownership interest or perpetual right to occupy and use portions of Charter’s cable system. Both reports were prepared long before the commencement of this litigation. The first report was dated September 7, 1999, after the terms of the settlement agreement had been finalized. In that report, Ms. Sansone described the primary terms of the agreement and recommended that Glendale’s City Council approve it. In describing the results of the settlement agreement negotiations, the report mentioned the I-Net only in passing. That report stated that Charter “agreed to comply with the following Franchise requirements:... provide full return capacity from sites specified in Exhibit B.”

The first report referred to the I-Net as a “franchise requirement” but said nothing about Glendale obtaining a permanent possessory interest to strands of optical fiber. Yet Ms. Sansone submitted a declaration in this lawsuit calling the "complete restructuring of the original institutional network requirement from a dedication of band width to the actual provision of physical fiber” one of the four “most critical provisions” of the settlement agreement. At trial, according to the trial court, Ms. Sansone was unable to reconcile credibly her declaration testimony with the absence in the staff report of any reference to Glendale’s acquisition of I-Net fiber, and therefore the report undermined the credibility of Ms. Sansone’s testimony about the parties’ “mutual” understanding of the I-Net provisions.

A second staff report was submitted to the Glendale City Council in May 2006, when the California Legislature was considering enacting the State

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Cable Act. That staff report also was inconsistent with Ms. Sansone’s testimony. In that staff report, Ms. Sansone advised the Glendale City Council that if the State Cable Act passed, Glendale “would no longer be able to require cable operators to provide institutional network lines and free cable services to public buildings.” According to Ms. Sansone, the State Cable Act “would preempt these requirements, eliminating [Glendale’s] authority to require such lines.” On that basis, she recommended that Glendale join in letters opposing the State Cable Act. The fact that the report did not state that Glendale had already acquired the right to use the I-Net in perpetuity was inconsistent with Ms. Sansone’s testimony that Glendale had obtained such a right. The trial court concluded that Ms. Sansone’s attempt to reconcile her current testimony with the contents of the May 2006 staff report was not credible.

b. The Structure and Maintenance of the I-Net Is Consistent with Charter’s Ownership

At the time of trial, Charter provided Glendale with the use of the I-Net by connecting 24 public buildings to Charter’s cable system through fiber optic “cable drops.” Four strands of optical fiber connected each building (other than the Perkins Building) to the system backbone. When those four fibers reached the backbone, they were spliced with fibers already in the backbone in a way that provided a continuous route to the Perkins Building, which fibers served as a hub for the I-Net. As they ran from one public building to another through Charter’s distribution system, the I-Net fibers were contained in larger cables that also contained many other fiber strands that were used to serve other Charter customers. In other words, the I-Net was completely integrated into Charter’s cable system. Charter was not required to use any particular fiber strands to provide I-Net connectivity. Charter could re-engineer its system and provide I-Net connectivity through different strands than the ones that were currently being used for that purpose. The trial court considered these facts as suggesting Charter’s ownership of the I-Net.

c. The I-Net Is Not a “Fixture”

Charter’s senior director of engineering testified that the sheaths that contain the fibers used exclusively by Glendale as part of the I-Net were contained within conduit in the ground or hung from utility poles. He testified that Charter could easily remove and replace the fiber sheaths in its system at will, without destroying or damaging them or the rest of Charter’s fiber network. In fact, according to the testimony, Charter periodically removed portions of fiber optic cable from where they were placed as part of cable relocation efforts ...


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