118 F.3d 917 (2nd Cir. 1997), 1428, Time Warner Cable of New York City, a division of Time Warner Entertainment Co., L.P. v. Bloomberg L.P.

Docket Nº:1428, 1429, Dockets 96-9515, 96-9517.
Citation:118 F.3d 917
Party Name:TIME WARNER CABLE OF NEW YORK CITY, A DIVISION OF TIME WARNER ENTERTAINMENT COMPANY, L.P.; Paragon Communications, d/b/a Time Warner Cable of New York City; Queens Inner Unity Cable Systems, d/b/a Quics, and TWC Cable Partners, d/b/a Staten Island Cable, Plaintiffs-Appellees, v. BLOOMBERG L.P., Defendant-Intervenor-Appellant, City of New York, Defe
Case Date:July 03, 1997
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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118 F.3d 917 (2nd Cir. 1997)

TIME WARNER CABLE OF NEW YORK CITY, A DIVISION OF TIME

WARNER ENTERTAINMENT COMPANY, L.P.; Paragon Communications,

d/b/a Time Warner Cable of New York City; Queens Inner

Unity Cable Systems, d/b/a Quics, and TWC Cable Partners,

d/b/a Staten Island Cable, Plaintiffs-Appellees,

v.

BLOOMBERG L.P., Defendant-Intervenor-Appellant,

City of New York, Defendant-Appellant.

Nos. 1428, 1429, Dockets 96-9515, 96-9517.

United States Court of Appeals, Second Circuit

July 3, 1997

Argued Feb. 19, 1997.

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Elizabeth I. Freedman, New York City (Paul A. Crotty, N.Y. City Corporation Counsel, Leonard Koerner, Timothy J. O'Shaughnessy, Office of the N.Y. City Corporation Counsel, New York City, on the brief), for defendant-appellant.

Martin Garbus, New York City (Maura J. Wogan, Edward H. Rosenthal, Edward Hernstadt, Frankfurt, Garbus, Klein & Selz, New York City, on the brief), for defendant-intervenor-appellant.

Stuart W. Gold, New York City (Robert D. Joffe, Rory O. Millson, Rowan D. Wilson, Julie A. North, Cravath, Swaine & Moore, New York City, on the brief), for plaintiffs-appellees.

(James N. Horwood, Spiegel & McDiarmid, Washington, DC; Jeffrey S. Hops, Washington, DC, submitted a brief for amicus curiae Alliance for Community Media).

(Floyd Abrams, Landis C. Best, Cahill Gordon & Reindel, New York City, submitted a brief for amici curiae Mark Green, Ruth Messinger, and Fernando Ferrer).

(Arthur H. Harding, R. Bruce Beckner, Jill Kleppe McClelland, Fleischman and Walsh, Washington, DC, submitted a brief for amicus curiae National Cable Television Association, Inc.).

(Arthur N. Eisenberg, New York City, submitted a brief for amicus curiae New York Civil Liberties Union).

(Clifford Thau, Squadron, Ellenoff, Plesent & Sheinfeld, New York City; Yosef J. Riemer, Kirkland & Ellis, New York City; Richard Cordray, Paul D. Clement, Eric R. Claeys, Kirkland & Ellis, Washington, DC, submitted a brief for amicus curiae Fox News Network).

(Robert T. Perry, Thomas J. Sinnickson, Brooklyn, NY, submitted a brief for amicus curiae Media Access New York).

(Yvonne S. Quinn, Jacqueline Bryks, Sullivan & Cromwell, New York City, submitted a brief for amicus curiae Cablevision of New York City).

Before: NEWMAN, KEARSE and FRIEDMAN, [*] Circuit Judges.

JON O. NEWMAN, Circuit Judge.

This appeal concerns the use of channels on a cable television system. The ultimate issue is whether a cable system operator may prevent a city from placing on channels reserved to the city for educational or governmental purposes a 24-hour general news service and a 24-hour business news service, both produced by commercial television programmers. The issue arises on an appeal from the November 6, 1996, order of the United States District Court for the Southern District of New York (Denise L. Cote, Judge) granting the motion of Plaintiffs, including Time Warner Cable of New York City, for a preliminary injunction to prevent New York City ("the City") from using channels reserved for educational or governmental purposes to carry the 24-hour programming service of Fox News or Bloomberg Informational Television. Time Warner Cable of New York City v. City of New York, 943 F.Supp. 1357 (S.D.N.Y.1996) ("Time Warner I "). The injunction was grounded primarily on the Court's view that Plaintiffs were likely to succeed on their claim that the City's proposed use of the channels violated Plaintiffs' First Amendment rights.

Without adjudicating the First Amendment issue, we conclude that Plaintiffs have shown a probability of success on their claim that the City's proposed use of educational and governmental channels would violate the franchise agreements between the City and

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Plaintiffs, and that the District Court did not exceed its discretion in concluding that a preliminary injunction was needed to prevent irreparable injury.

Background

Understanding the issues requires some consideration of the pertinent provisions of the Cable Communications Policy Act of 1984 ("the Cable Act"), Pub.L. No. 98-549, 98 Stat. 2779, 47 U.S.C. § 521 et seq., as well as the facts of this case.

  1. The Cable Act

    A "cable operator" is an entity that transmits programming over a cable system and owns or controls the facilities or equipment--the system--used for such transmissions. 47 U.S.C. §§ 522(5)-(7) (1994). Plaintiffs, Time Warner Cable of New York City, Paragon Communications, Queens Inner Unity Cable Systems, and TWC Cable Partners (collectively, "Time Warner") are cable operators serving Manhattan, Brooklyn, Queens, and Staten Island. Under agreements similar to those that bind most, if not all, cable operators in the nation, Time Warner owns its cable systems and operates them subject to franchise agreements between the City, as franchisor, and Time Warner, as franchisee. 1

  2. Time Warner's Cable System

    The Cable Act provides statutory authority for governmental entities, such as the City, to require cable operators to enter franchise agreements governing the operation of their cable systems, and to require the operators' compliance with the Act's national standards for the provision of cable television services. See 47 U.S.C. § 521. One of those national standards authorizes the franchisor to require the cable operator to set aside some channel capacity for the franchisor to use or assign for the transmission of what the Act labels "public, educational, or governmental use." 47 U.S.C. § 531(b). Such use is known as "PEG" programming.

    There are nine PEG channels in Manhattan, and a total of nine more covering the rest of the City. Time Warner's cable system consists of seventy-seven channels in Manhattan, and seventy-six covering the other boroughs it serves. Under Time-Warner's franchise agreements with the City, nine of the seventy-seven Manhattan channels are reserved for PEG programming, as are nine of the seventy-six channels in the other boroughs. 2 Of the nine channels allotted to the City for PEG use in all boroughs, five are designated for educational or governmental ("EG") use, and are administered by the City itself on what is known as the "Crosswalks Network." The four public ("P") channels are administered by the Manhattan Neighborhood Network as public access channels and are not at issue in this case.

  3. The Franchise Agreements

    In 1983, Time Warner and the City entered into a Franchise Agreement (the "1983 Agreement") whereby the City permitted Time Warner to lay cable equipment and to provide cable services in Brooklyn, Queens, and Staten Island. That Agreement remains in effect today, as does a similar agreement (the "1990 Agreement") covering the northern and southern portions of Manhattan.

    Both Agreements provide for PEG channels to be reserved for use by the City. The two Agreements, however, do not use the same language to define the scope of proper use of those PEG channels. Section 4.1.03 of the 1983 Agreement refers to the PEG channels as "Municipal Channels," which may be used "for the purpose of distributing noncommercial Services by the City or for any other lawful, governmental purpose...."

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    The corresponding provision in the 1990 Agreement provides:

    The Governmental Channels shall be ... used for distributing Services by the City or educational institutions for functions or projects related to governmental or educational purposes, including the generation of revenues by activities reasonably related to such uses and purposes.

    1990 Agreement § 4.1.04. The City retained the right under both Agreements to approve in advance any "change in control" of the franchisees, with "control" defined as "actual working control." See 1990 Agreement §§ 11.2, 1.20; 1983 Agreement §§ 14.1, 1.15.

    Facts

    In late September 1995, Time Warner, Inc. (the corporate parent of the franchisees) publicly announced that it intended to merge with Turner Broadcasting System, Inc. Eight months later, on May 30, 1996, Richard Aurelio, President of Time Warner Cable of New York City, wrote a letter notifying the City of the planned merger and explaining that Time Warner did not consider the merger a change of control under the Franchise Agreements, and therefore that the City's consent to the merger would not be necessary. 3 After a meeting, the City's Department of Information Technology and Telecommunications ("DoITT"), which is the City agency charged with administering the use of Crosswalks, directed Time Warner to submit a formal petition for an official determination that Time Warner's merger was not a change of control. 4 On July 22, 1996, Time Warner submitted its formal petition, and included a request that the City resolve the issues by August, since it was expected that the merger would close in September. By late July, DoITT had informed Time Warner that the City considered the merger to be a change of control, but that "we believe that it may be possible for DoITT to recommend approval of the merger," and that efforts would be made to do so within the requested time frame.

    During the same period, negotiations were ongoing between Time Warner and MSNBC, a joint venture between NBC and Microsoft, as well as between Time Warner and Fox News, a network to be distributed by News Corporation. MSNBC and Fox had both announced plans to begin a 24-hour news service for cable. Time Warner's carriage of either one of these news networks on its cable systems would facilitate its compliance with a Federal Trade Commission ("FTC") consent order that sought to resolve the potential anticompetitive effects of the merger. 5

    Time Warner ultimately chose MSNBC over Fox to provide the unaffiliated news programming required...

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