754 F.2d 1396 (9th Cir. 1985), 84-5541, Preferred Communications, Inc. v. City of Los Angeles, Cal.

Docket Nº:84-5541.
Citation:754 F.2d 1396
Party Name:1985-2 Trade Cases 66,773 PREFERRED COMMUNICATIONS, INC., a California corporation, Plaintiff-Appellant, v. CITY OF LOS ANGELES, CALIFORNIA, a municipal corporation; and Department of Water and Power, a municipal utility, Defendants-Appellees.
Case Date:March 01, 1985
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1396

754 F.2d 1396 (9th Cir. 1985)

1985-2 Trade Cases 66,773

PREFERRED COMMUNICATIONS, INC., a California corporation,



CITY OF LOS ANGELES, CALIFORNIA, a municipal corporation;

and Department of Water and Power, a municipal

utility, Defendants-Appellees.

No. 84-5541.

United States Court of Appeals, Ninth Circuit

March 1, 1985

Page 1397

[Copyrighted Material Omitted]

Page 1398

[Copyrighted Material Omitted]

Argued and Submitted Dec. 7, 1984.

As Amended on Denial of Rehearing and Rehearing En Banc June

13, 1985.

As Amended June 26, 1985.

Page 1399

Harold R. Farrow, Farrow, Schildhause, Wilson & Rains, Sacramento, Cal., John A. Wellcome, Mark Leach, Pachter, Gold & Schaffer, Los Angeles, Cal., for plaintiff-appellant.

George H. Shapiro, James P. Mercurio, Gerald E. Oberst, Jr., Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., amicus curiae.

Edward C. Farrell, Ira Reiner, City Atty., Edward Perez, Deputy City Atty., Los Angeles, Cal., for defendants-appellees.

Jerome B. Falk, Jr., Dirk M. Schenkkan, Therese M. Stewart, Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, Cal., amicus curiae.

Appeal from the United States District Court for the Central District of California.

Before SNEED, ANDERSON, and FERGUSON, Circuit Judges.

SNEED, Circuit Judge:

Preferred Communications, Inc. (PCI) brought an action arising under 42 U.S.C. Sec. 1983 (1982) against the City of Los Angeles (the City) and the Los Angeles Department of Water and Power claiming a deprivation of rights protected under the First and Fourteenth Amendments, as well as violations of the federal antitrust laws, and various state law violations. The district court had jurisdiction under 28 U.S.C. Secs. 1331, 1337, 1343, 2201, 2202 (1982), and under its pendant jurisdiction. It found as a matter of law that the City's regulatory scheme did not violate the First Amendment rights of a prospective cable television operator and that the City was immune from antitrust liability under the state action exemption established in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). Accordingly, the court dismissed PCI's complaint without leave to amend, pursuant to Fed.R.Civ.P. 12(b)(6). 1

PCI appeals from this dismissal. As the district court dismissed PCI's federal claims without leave to amend, its decision is final and appealable. See Whittington v. Whittington, 733 F.2d 620, 621 (9th Cir.1984); Conerly v. Westinghouse Electric Corp., 623 F.2d 117, 119 (9th Cir.1980). This court therefore has jurisdiction over PCI's timely appeal under 28 U.S.C. Sec. 1291 (1982). We affirm the district court's decision insofar as it pertains to the plaintiff's antitrust claims and reverse its dismissal of the First Amendment claim. 2



A decision to dismiss a complaint for failure to state a claim upon which relief can be granted is reviewable de novo. Guillory v. County of Orange, 731 F.2d 1379, 1381 (9th Cir.1984). In conducting this review, we must accept all material allegations in the complaint as true. Berner v. Lazzaro, 730 F.2d 1319, 1320 (9th Cir.1984). All doubts are resolved in favor of the plaintiff. Ernest W. Hahn, Inc. v. Codding, 615 F.2d 830, 834-35 (9th Cir.1980). A dismissal cannot be upheld " 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' " Id. at 834 (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957)); accord Halet v. Wend Investment Co., 672 F.2d 1305, 1309 (9th Cir.1982). With these principles in mind, we turn to PCI's complaint.



As alleged in PCI's complaint, the pertinent facts appear as follows. PCI is a corporation which was organized for the

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purpose of operating a cable television system in an area of Los Angeles designated by the City as the South Central District. PCI's intended operation entailed the installation of a network of distribution cables in the region PCI wished to serve. PCI proposed to attach its cable to existing public utility facilities--poles and conduits located on property owned in fee by the utility and on or under easements owned by the utility running over both public and private rights of way.

For a number of years, utilities throughout the State of California have dedicated surplus space on their facilities for similar uses. The California legislature recognized this dedication, at least with regard to nonmunicipal utilities, when it enacted Cal.Pub.Util.Code Sec. 767.5(b) (West Supp.1984) (dedicating surplus space and excess capacity on public utility support structures for use by cable television companies). Accordingly, PCI approached two utilities in the Los Angeles area--the Pacific Telephone and Telegraph Company and the Los Angeles Department of Water and Power--to negotiate a lease of space on those companies' poles and conduits. Both utilities informed PCI that such an agreement would not be possible until PCI obtained a cable television franchise from the City. PCI then petitioned the City in an attempt to obtain such a franchise.

The City allocates franchises through an auction process. Franchising or licensing the construction of a cable television system is authorized by Cal.Gov't Code Sec. 53066 (West Supp.1984). 3 The City requires companies wishing to participate in the process to submit to a variety of conditions. A potential bidder must pay a $10,000 filing fee and a $500 good faith deposit and must agree to pay up to an additional $60,000 to reimburse the City for expenses incurred in holding the auction. It must provide the City with a detailed proposal outlining its intended operations over the succeeding nine years and must demonstrate to the satisfaction of the City that it has a "sound financial base," that its proposed operations constitute "sound business plans," and that it has the proper "character qualifications" and "demonstrated business experience." The City also requires hopeful bidders to agree to pay the City a percentage of future annual gross revenues and to provide a variety of customer services, including at least 52 channels of video service and interactive (two way) service.

More significantly, the City exacts a commitment to provide various mandatory access and leased access channels. Bidders must agree to provide, without compensation, two channels for use by the City and by other government entities, two channels for use by educational institutions, and two channels for use by the general public, along with staff and facilities to aid in programming. Bidders must further agree to provide two leased access channels as

Page 1401

well. An undertaking to provide portable production facilities and to permit free use by the City of all poles, towers, ducts, and antennas is also required.

Finally, potential cable operators must agree to leave a variety of business decisions to the discretion of the City. Pricing and customer relations are left to the City's control. The operator must form a "cable franchise advisory board," subject to City approval. Lastly, the City reserves the right to inspect the cable operation upon demand and requires a waiver of any right to recover for damages or other injury arising from the cable franchise or its enforcement.

After the submission of bids from companies willing to submit to the foregoing conditions, the City chooses the operator it deems to be "best" for each area. It awards just one franchise in each region. The City refused PCI's request for a franchise because PCI had failed to participate in the auction process. The City will not permit PCI to operate a cable television system in the South Central District under any circumstances.



PCI's appeal raises two issues--one constitutional and one statutory. The constitutional one is whether the City's cable franchise procedure in any respect violates the First Amendment. The statutory one is whether the City is immune from antitrust liability under the doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).



PCI's arguments amount to a sweeping attack against the City's cable television franchising process. PCI contends, inter alia, that its right to construct a cable television system and disseminate programming via the cable medium should not be conditioned upon having to participate in an auction procedure or be otherwise subject to the City's discretion. It maintains that the City cannot choose which cable providers may use the City's facilities to install and operate cable systems and cannot condition that use on such requirements as the City has imposed in this case.

These contentions are wide-ranging. Were we to attempt to respond in like measure, we would not escape the charge of rendering advisory opinions poorly disguised as sweeping dicta. On the other hand, we cannot regard this case as one which is either unripe for decision or moot. PCI has sought a franchise from the City which the City to date has refused to grant.

An escape from our dilemma would be to identify a fundamental issue which, if decided in favor of the City, would require affirming the judgment of the district court and which, if decided adversely to the City, would require reversal and a redesign by the City of its procedures relating to cable television. We believe such an issue is as follows:

Can the City, consistent with the First Amendment, limit access by means of an auction process to a given region of the City to a single cable television company, when the public utility facilities and other public property in that region necessary to the installation and operation of a cable television system are physically capable of accommodating more than one system?

We do not decide the validity of any of the specific...

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