Bard v. Cox Cable of Omaha, Inc.

• Decision Date: 25 November 1987
• Docket Number: No. 85-526,85-526
• Parties: Karen L. BARD, Appellant, v. COX CABLE OF OMAHA, INC., a Nebraska Corporation, and City of Omaha, a Municipal Corporation, Appellees.
• Court: Nebraska Supreme Court

Page 4

416 N.W.2d 4

226 Neb. 880

Karen L. BARD, Appellant, v. COX CABLE OF OMAHA, INC., a Nebraska Corporation, and City of Omaha, a Municipal Corporation, Appellees.

No. 85-526.

Supreme Court of Nebraska.

Nov. 25, 1987.

Syllabus by the Court

1. Demurrer. In considering a demurrer, a court accepts as true all the facts pled, together with the proper and reasonable inferences of law and fact which may be drawn therefrom, but does not accept as true the conclusions of the pleader.

2. Quo Warranto: Franchises. Absent an illegal expenditure of public funds or an increase in the tax burden, the sole method of attacking the validity of a franchise is by quo warranto.

3. Public Utilities: Rates: Actions. In order to judicially challenge a rate set by a legislative body, one must allege a special injury peculiar to himself or herself aside from and independent of that suffered by the nonsubscribing general public.

4. Municipal Corporations: Rates: Actions. Before one may resort to a judicial challenge of rates set by a municipality, he or she must first seek redress from the municipality.

5. Municipal Corporations: Rates: Actions. One is excused from making a demand upon a municipality to adjust a rate if such demand would be unavailing.

6. Constitutional Law: Rates: Actions. Courts have the power to review legislatively set rates to determine whether they are so arbitrary and unreasonable as to be confiscatory and thus unconstitutionally take property without due process of law.

7. Telecommunications: Rates: Actions. The Cable Communications Policy Act of 1984, 47 U.S.C. §§ 521 et seq. (1982 & Supp. II 1984), does not preclude state judicial review of basic and nonbasic community antenna television service rates charged prior to December 29, 1986.

8. Demurrer: Pleadings: Actions. Pleadings in ordinary actions are to be liberally construed; if with such a construction a petition states a cause of action, a demurrer is to be overruled.

J. Patrick Green, Martin A. Cannon, and Larry W. Myers, Omaha, for appellant.

Frank F. Pospishil and Harvey B. Cooper of Abrahams, Kaslow & Cassman, Omaha, and Brent N. Rushforth and James M. McElfish, Jr., of Dow, Lohnes & Albertson, Washington, D.C., for appellee Cox Cable.

Herbert M. Fitle, Omaha City Attorney, and Timothy M. Kenny, Omaha, for appellee City of Omaha.

KRIVOSHA, C.J., and BOSLAUGH, WHITE, HASTINGS, CAPORALE, SHANAHAN, and GRANT, JJ.

PER CURIAM.

Plaintiff-appellant, Karen L. Bard, seeks an adjudication under the Uniform Declaratory Judgments Act, Neb.Rev.Stat. §§ 25-21, 149 et seq. (Reissue 1985), that the community antenna television service franchise granted by the defendant-appellee City of Omaha to the defendant-appellee Cox Cable of Omaha, Inc., a Nebraska corporation, is void or, in the alternative, that the rates set by the city and charged by Cox Cable are excessive, and for other relief. The district court, after sustaining the separate demurrers of the city and of Cox Cable, dismissed Bard's amended petition. The five errors which Bard assigns to the district court's order of dismissal merge to challenge the district court's determinations that (1) she lacks the capacity to sue, (2) the court lacks subject matter jurisdiction, and (3) she has failed to state a cause of action. We reverse and remand for further proceedings.

This is the third suit concerning the Omaha-Cox Cable franchise to find its way to this court, the other two being Hall v. Cox Cable of Omaha, Inc., 212 Neb. 887, 327 N.W.2d 595 (1982), and Green v. Cox Cable of Omaha, Inc., 212 Neb. 915, 327 N.W.2d 603 (1982). In this third suit Bard alleges that in March of 1980 Cox Cable and five other applicants, pursuant to invitation, submitted to the city their proposals for providing community antenna television service to the city's residents. After holding public hearings, the city council adopted an ordinance granting a 15-year franchise to Cox Cable, pursuant to which the city's mayor signed a franchise agreement with Cox Cable in September of 1980.

In order to induce the city to award it the franchise, Cox Cable represented that it would include in its service a feature called "Interactive Data Exchange" (INDAX), which would allow users to bank, shop, check travel schedules, play games, and access various data sources. However, contrary to Cox Cable's statements and representations, INDAX did not then exist, Cox Cable knew it did not exist, and no such service presently operates anywhere. Each of the five city council members who voted for the franchise publicly stated that Cox Cable's representations regarding INDAX and the promise to deliver INDAX service were the factors which convinced him to vote in favor of awarding the franchise to Cox Cable. Even though Cox Cable's other services were not as high in quality as those proposed by the other companies, the promised INDAX service would have rendered Cox Cable's proposal superior in quality to the others and would have justified acceptance of the Cox Cable proposal, notwithstanding the fact its rates were in excess of those proposed by the other applicants.

The operative petition further alleges that (1) other than INDAX, the quality of services offered by the other applicants was equal to or better than that offered by Cox Cable; (2) the rates proposed by the other applicants were 5 to 20 percent lower than those charged by Cox Cable; (3) the services actually offered by Cox Cable are not as numerous, or as varied, as the services proposed by the other applicants; and (4) the rates approved by the city council under the franchise agreement are between 10 and 30 percent higher than rates charged by "other comparable CATV companies for comparable services in cities of comparable size elsewhere in the United States." The petition also asserts that Bard has subscribed to and paid for the services provided by Cox Cable since 1982. The petition concludes that the Cox Cable rates are excessive and unreasonable in violation of Neb.Rev.Stat. § 18-2201 (Reissue 1983), the due process clause of the 14th amendment to the U.S. Constitution, and Neb. Const. art. I, §§ 1, 3, 16, 21, and 25.

Prior to filing this action, Bard, through her attorneys, on November 18, 1983, wrote the city a letter asking that public hearings be held to review Cox Cable's franchise and rates. The letter advised that if notice of such hearings was not received within 10 days, judicial relief would be sought. This letter referred to and incorporated a June 8, 1983, letter sent to the city by the same attorneys on behalf of another subscriber. That earlier letter also asked that the matter of Cox Cable's franchise and rates be put on the city council's agenda within 30 days. The city took no action in response to either letter.

Thus, Bard undertook to state two causes of action. The first seeks to void the franchise on the ground it was procured by fraud. The second seeks a judicial review of rates which are alleged to be arbitrary and unreasonable.

The city and Cox Cable each demurred pursuant to the provisions of Neb.Rev.Stat. § 25-806 (Reissue 1985), which provides that a defendant may demur to a petition when it appears from the face thereof that, among other things, (1) the plaintiff lacks legal capacity to sue, (2) the court lacks subject matter jurisdiction, or (3) the petition fails to state a cause of action. The five bases upon which each demurrer rests combine to assert the existence of each of the foregoing three statutory grounds, which parallel the findings made by the district court and correlate to the assignments of error presented by this appeal. Neither demurrer rests on the claim that several causes of action are improperly joined, also a statutory ground.

Because this case was decided by the district court on demurrers, we are required to accept as true all the facts pled, together with the proper and reasonable inferences of law and fact which may be drawn therefrom, but we do not accept as true the conclusions of the pleader. Ambroz v. Cornhusker Square Ltd., 226 Neb. 899, 416 N.W.2d 510 (1987); Slusarski v. County of Platte, 226 Neb. 889, 416 N.W.2d 213 (1987); Knoell v. Huff, 224 Neb. 90, 395 N.W.2d 749 (1986); Midwest Messenger Assn. v. Spire, 223 Neb. 748, 393 N.W.2d 438 (1986).

In connection with the first assignment of error, the finding that Bard lacks the capacity to sue, we concern ourselves first with the prayer that the franchise be declared void.

The long-settled law of this jurisdiction is that, absent an illegal expenditure of public funds or an increase in the tax burden, the sole method of attacking the validity of a franchise is by quo warranto. Neb.Rev.Stat. §§ 25-21, 121 et seq. (Reissue 1985); Clark v. Interstate Independent Telephone Co., 72 Neb. 883, 101 N.W. 977 (1904). No facts are pled from which it can be concluded that there has been an illegal expenditure of public funds or that taxes are affected. Thus, Bard lacks the legal capacity to maintain this action for the purpose of challenging the validity of the franchise.

As a subscriber to the franchise services, Bard has a special interest in the rates she pays and would benefit by a reduction of those rates. Thus, she alleges a special injury peculiar to herself aside from and independent of that suffered by the nonsubscribing general public. See, Reimer v. KN Energy, Inc., 223 Neb. 142, 388 N.W.2d 479 (1986); Nebraska Sch. Dist. No. 148 v. Lincoln Airport Auth., 220 Neb. 504, 371 N.W.2d 258 (1985); Hall v. Cox Cable of Omaha, Inc., 212 Neb. 887, 327 N.W.2d 595 (1982); Green v. Cox Cable of Omaha, Inc., 212 Neb. 915, 327 N.W.2d 603 (1982).

We have also said that before one may resort to a judicial challenge of rates set by a municipality, he or she must first seek redress from the municipality. Hall v. Cox Cable of Omaha, Inc., supra. The rule is analogous to that employed in derivative actions by stockholders against private corporations....