Lansdowne on the Potomac Homeowners Ass'n, Inc. v. Openband at Lansdowne, LLC

• Decision Date: 05 April 2013
• Docket Number: No. 12–1925.,12–1925.
• Citation: 713 F.3d 187
• Parties: LANSDOWNE ON THE POTOMAC HOMEOWNERS ASSOCIATION, INC., Plaintiff–Appellee, v. OPENBAND AT LANSDOWNE, LLC; OpenBand SPE, LLC; OpenBand Multimedia, LLC; M.C. Dean, Inc., Defendants–Appellants, and LCD Communications, LLC; OpenBand of Virginia, LLC; William H. Dean; Lansdowne Community Development, LLC, Defendants. Federal Communications Commission, Amicus Supporting Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

713 F.3d 187

LANSDOWNE ON THE POTOMAC HOMEOWNERS ASSOCIATION, INC., Plaintiff–Appellee,

v. OPENBAND AT LANSDOWNE, LLC; OpenBand SPE, LLC; OpenBand Multimedia, LLC; M.C. Dean, Inc., Defendants–Appellants,andLCD Communications, LLC; OpenBand of Virginia, LLC; William H. Dean; Lansdowne Community Development, LLC, Defendants.Federal Communications Commission, Amicus Supporting Appellee.

No. 12–1925.

United States Court of Appeals, Fourth Circuit.

Argued: Jan. 29, 2013.

Decided: April 5, 2013.

ARGUED:Sanford M. Saunders, Jr., Greenberg Traurig, LLP, Washington, D.C., for Appellants. Christopher J. Wright, Wiltshire & Grannis, LLP, Washington, D.C., for Appellee. ON BRIEF:Robert P. Charrow, Laura Metcoff Klaus, Greenberg Traurig, LLP, Washington, D.C., for Appellants. Steven A. Fredley, Mark D. Davis, Wiltshire & Grannis, LLP, Washington, D.C., for Appellee. Sean A. Lev, General Counsel, Peter Karanjia, Deputy General Counsel, Jacob M. Lewis, Associate General Counsel, Matthew J. Dunne, Counsel, Federal Communications Commission, Washington, D.C., for Amicus Supporting Appellee.

Before WILKINSON, MOTZ, and THACKER, Circuit Judges.

Affirmed by published opinion. Judge WILKINSON wrote the opinion, in which Judge MOTZ and Judge THACKER joined.

OPINION

WILKINSON, Circuit Judge:

Lansdowne on the Potomac Homeowners Association sued OpenBand, a group of interlocking entities that provides cable services to the Lansdowne on the Potomac real estate development.¹ The homeowners association alleged that OpenBand entered into a series of contracts that conferred upon Open–Band the exclusive right to provide video services to the development, in violation of an order of the Federal Communications Commission prohibiting such exclusivity arrangements. The district court agreed, declaring the challenged provisions null and void and permanently enjoining their enforcement. Because the contract provisions prohibit competing cable providers from accessing the Lansdowne development in patent violation of the FCC's Order, we affirm the judgment of the district court.

I.

A.

In 1992, Congress enacted the Cable Television Consumer Protection and CompetitionAct (“1992 Cable Act”), Pub.L. No. 102–385, 106 Stat. 1460. Congress made several findings in passing the Act, among them that “most cable television subscribers have no opportunity to select between competing cable systems”; that this lack of competition had led to “undue market power for the cable operator as compared to that of consumers”; and that cable prices were rising almost three times faster than the rate of inflation. 1992 Cable Act § 2(a)(2), (1), 106 Stat. at 1460. The Act accordingly made it unlawful for a cable operator to engage in “unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent” any other operator from providing services to consumers. 47 U.S.C. § 548(b). The Act also authorized the FCC to “prescribe regulations to specify particular conduct that is prohibited by” this provision. Id. § 548(c)(1).

Pursuant to that authority, the FCC issued a notice of proposed rulemaking in March 2007 soliciting comments on the propriety of a practice popular among cable operators: the use of “exclusivity clauses” that grant the operator exclusive access for providing video services within a particular multiple dwelling unit (“MDU”). Exclusive Service Contracts for Provision of Video Services in Multiple Dwelling Units and Other Real Estate Developments, 22 FCC Rcd. 5,935 (proposed Mar. 27, 2007). In response, the FCC received comments revealing that exclusivity clauses “have the clear effect of barring new entry into MDUs by wire-based” video providers and that such clauses were “widespread” and increasing in their use. Exclusive Service Contracts for Provision of Video Services in Multiple Dwelling Units and Other Real Estate Developments, 22 FCC Rcd. 20,235 ¶¶ 10, 15 (Nov. 27, 2007) (“Exclusivity Order ”). Commenters also highlighted the injuries that exclusivity clauses inflict upon consumers, such as increased prices, lower quality, and a reduced menu of cable channel options. See id. ¶ 17–23. The FCC thus concluded that “exclusivity clauses cause significant harm to competition and consumers” and that “the harms of [such] clauses outweigh their benefits.” Id. ¶ 26.

Based on this record, the FCC unanimously adopted the Exclusivity Order at issue in this case. The order sets forth the following rule: “[N]o cable operator ... shall enforce or execute any provision in a contract that grants it the exclusive right to provide any video programming service (alone or in combination with other services) to a MDU. Any such exclusivity clause shall be null and void.” Exclusivity Order ¶ 31 (codified at 47 C.F.R. § 76.2000(a)).

B.

In 1999, a partnership of Virginia land developers created the Lansdowne Community Development (“LCD”), a limited liability company with the purpose of developing a residential community known as Lansdowne on the Potomac in Loudoun County, Virginia. The Lansdowne development comprises roughly 850 acres of land, upon which some 2,155 individual homes are built. Although Lansdowne residents own their own homes, all residents share an interest in common areas that require central management. LCD therefore created appellee, the Lansdowne on the Potomac Homeowners Association (“LHOA” or “the homeowners association”), to provide for the management of the development and amenities such as video, phone, and internet services.

In the process of planning the development, LCD engaged M.C. Dean, Inc., a Virginia technical services contractor, to design and install telecommunications systemsin the community. For its part, according to M.C. Dean's CEO, the company sought from LCD the “exclusive right to provide ... telecommunication services” to Lansdowne. M.C. Dean created a number of corporate entities and entered into a series of contemporaneous, interlocking contractual arrangements to achieve this end.

The structure of this whole enterprise was a convoluted one. With respect to the corporate entities, M.C. Dean formed OpenBand at Lansdowne (“OBL”), a limited liability company with the purpose of developing and administering telecommunication services at Lansdowne. OBL had two members: a wholly owned subsidiary of M.C. Dean's called OpenBand SPE (“OBS”), which M.C. Dean created for the purpose of holding its interest in OBL, and a subsidiary of LCD's called LCD Communications.² M.C. Dean also formed OpenBand Multimedia, LLC (“OBM”), which is an FCC-certified open video system operator that provides video and internet services to Lansdowne and other Virginia communities. Lastly, M.C. Dean formed OpenBand of Virginia (“OBV”), which provides phone service to Virginia communities, including Lansdowne. OBL, OBS, OBM, OBV, and M.C. Dean are all defendants and appellants in this case (collectively, “OpenBand”).³

With respect to the contractual arrangements, three are of particular relevance. First, LCD granted a deed of easement to OBL on May 14, 2001, entitled the “Exclusive Easement for Telecommunications Services at Lansdowne on the Potomac.” LHOA is named as a party to the deed as the “Future Owner” of the Property. LHOA ratified the easement acting through its then-president (who was also president of LCD, which controlled LHOA at the time).⁴ By its express terms, the deed grants to OBL “exclusive easements for the purpose of constructing, operating, maintaining, adding to, altering, or replacing (collectively ‘Administering’ or ‘Administer’) [telecommunications infrastructure] for the collection, provision, and distribution of video, telephonic, internet, data services, or other communications, data or media (collectively ‘Utilities').” The deed provides that “the exclusive easements” shall be “deemed to reserve solely to [OBL] the rights to Administer Utilities on, under and across the Property such that ... no other person or entity shall be entitled to Administer any Utilities on, under or across the Property without the written consent of [OBL].” The deed also prohibits LHOA from “grant [ing] any easement to Administer any Utilities on, under or across the Property” to any other party.

The second arrangement at issue is the Covenants, Conditions, and Restrictions for Lansdowne on the Potomac (the “CC & Rs”), dated June 18, 2001. The CC & Rs include a provision expressly recognizing OBL's “exclusive easements for access to and the installation, construction, [and] operation ... of a private utility and telecommunication system.” The CC & Rs refer to OBL's exclusivity in several other places, including a provision declaring that OBL's “rights with respect to the private utility system ... and the services provided through such private utility system are exclusive, and no other Person may provide such services to the Property.”

Finally, OBL entered into a contract with the homeowners association on July 24, 2001, entitled the “Agreement to Obtain Telecommunication Services” (“TSA”). Under the TSA, LHOA engaged OBL to provide “platform services,” or basic video, phone, and internet services that homeowners receive, as well as optional “premium services.” The TSA grants OBL the right to “provide[ ] or arrange for the provision of the Platform Services to Homeowners so that [LHOA] shall not engage any other provider of Platform services.” The TSA also incorporates the CC & Rs (which incorporate the easement as described above) by prohibiting LHOA from “amend[ing] the CC & Rs such that the amendment would ... have a materially adverse effect on OBL.”

C.

In terms of its actual delivery of telecommunications services, OBL purchases services from its affiliates—video and internet from OBM and telephone from OBV—and resells them to Lansdowne homeowners. OBL also separately sells its services to LHOA itself for purposes of the Potomac Club, a community center and office...