Cable Television Ass'n of New York, Inc. v. Finneran

• Citation: 954 F.2d 91
• Decision Date: 16 January 1992
• Docket Number: No. 384,D,384
• Parties: , 19 Media L. Rep. 2043 CABLE TELEVISION ASSOCIATION OF NEW YORK, INC., Plaintiff-Appellant, v. William B. FINNERAN; Theodore E. Mulford; Barbara T. Rochman; John A. Passidomo; Michael E. Russell, Individually and as members of the New York State Commission on Cable Television, and the New York State Commission on Cable Television, Defendants-Appellees. ocket 91-7539.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 91

954 F.2d 91

60 USLW 2478, 19 Media L. Rep. 2043

CABLE TELEVISION ASSOCIATION OF NEW YORK, INC., Plaintiff-Appellant, v. William B. FINNERAN; Theodore E. Mulford; Barbara T.

Rochman; John A. Passidomo; Michael E. Russell,

Individually and as members of the New York State Commission

on Cable Television, and the New York State Commission on

Cable Television, Defendants-Appellees.

No. 384, Docket 91-7539.

United States Court of Appeals,

Second Circuit.

Argued Oct. 24, 1991.

Decided Jan. 16, 1992.

R. Bruce Beckner, Charles S. Walsh, Stuart F. Feldstein, Jay B. Bryan, Fleischman and Walsh, P.C., Washington, D.C., for plaintiff-appellant.

Victor Paladino, Asst. Atty. Gen., Robert Abrams, Atty. Gen., Peter H. Schiff, Deputy Sol. Gen., Peter G. Crary, Asst. Atty. Gen. of State of N.Y., Albany, N.Y., for defendants-appellees.

Brenda L. Fox, Michael S. Schooler and Loretta P. Polk, Washington, D.C., for amicus curiae, Nat. Cable Television Ass'n, Inc.

Before MESKILL, WINTER and WALKER, Circuit Judges.

WALKER, Circuit Judge:

This case presents a challenge to New York's authority to regulate rates charged by cable television companies to customers wishing to downgrade to a less expensive level of cable service. The plaintiff, the Cable Television Association of New York (CTANY), asserts that Congress preempted state authority to regulate downgrade charges in the Cable Communications Policy Act of 1984, 47 U.S.C. § 521 et seq. [the Cable Act]. The District Court disagreed and granted New York summary judgment. We now affirm.

I

Cable television is a system of wires that carries video programming from a central source to the homes of subscribers. In order for a subscriber to receive cable television, the cable company must physically install a wire and a "cable box" in the subscriber's home. The cable box has two functions. First, it acts as a tuner for the television set, allowing the viewer to select the full range of channels. If the subscriber has a "cable ready" television set, this feature is unnecessary. Second, the cable box serves as a descrambler. The signals for premium channels (typically those carrying first run, or close to first run, movies) are encrypted by the cable company to prevent unauthorized viewing. If the customer subscribes to the premium channels, the cable box will descramble the signals. If the customer does not subscribe to the premium channels, the cable company can disable the descrambling feature. Depending on the technology of the particular cable system, this can be accomplished by installing a trap in the wire outside the subscriber's house, by removing the descrambling chip from the cable box, or by sending a signal from the cable system's central computer to the descrambling chip Subscribers cannot purchase cable services on a channel by channel basis. Instead, cable companies offer tiers of cable service. The lowest tier, economy service, usually consists of local stations, distant broadcast channels like WTBS, WGN, and WOR, and a few public, educational, and government access channels, like CSPAN. The second tier, standard service, includes all the channels in the economy tier, plus some non-broadcast programming networks, like ESPN or CNN. The highest tier, premium service, includes all the channels in the standard tier (and thus all the channels in the economy tier) as well as one or more premium channels, like Showtime or Home Box Office. Each tier includes all the channels in all the lower tiers. Thus, a downgrade to a lower tier results in the disconnection of certain channels, but the addition of none.

in the subscriber's box instructing the chip not to descramble the premium channels.

Cable companies recoup the costs of providing cable services by imposing a fee for installing the wire and descrambler and by charging a monthly rate keyed to the service tier chosen by the subscriber. Since cable companies make the most money when subscribers select premium service, the companies frequently attempt to entice new customers into signing up for premium channels by offering to waive installation charges for the premium subscriber.

In addition, in order to keep subscribers in a high tier once they sign up, and in order to defray the cost of disconnecting particular channels, many cable companies impose a substantial charge on customers wishing to downgrade to a lower tier of cable service. These fees range from $40-$100. Since the savings from dropping to a lower level of service is usually around $10 a month, the downgrade fee can remove much of the incentive to switch to a lower level of service.

The actual cost to the cable company of implementing the downgrade depends on the technology of the particular cable company. At a maximum, in those systems where a visit to the subscriber's home is required, (that is, those systems where the only way to disable the descrambler is to remove the chip or install a trap in the line) the actual cost of downgrades is between $50 and $75. In technologically advanced systems where no home visit is required, (that is, where the cable company can instruct the descrambling chip from the company's central computer) the actual cost of a downgrade is minimal.

In response to customer complaints about downgrade charges, the New York State Commission on Cable Television [the State] adopted regulations limiting the ability of cable companies to impose such charges. See 9 NYCRR §§ 590.61 & 590.63 (1990). The regulations define a downgrade charge as "a charge imposed upon a subscriber for implementing a request for a change in service to a less expensive tier than the tier currently subscribed to." § 590.61(h). While not prohibiting downgrade charges entirely, the regulations limit the charge to the company's actual cost, § 590.63(f)(2), and require that the charge may only be imposed where the customer has been given adequate notice, § 590.63(f)(1), and where the customer is downgrading from a service which the customer has not maintained for the last six months. § 590.63(f)(3). In short, the regulation restricts the use of downgrade charges to the prevention of "churning"--where a customer signs up for a premium channel in order to watch a particular program and then seeks to downgrade to a cheaper service tier shortly thereafter.

The State enacted these rules in final form on December 3, 1990, and ordered the cable companies to comply by May 2, 1991. On December 26, 1990, CTANY filed suit in the District Court for the Northern District of New York, seeking a declaration that the downgrade regulation was pre-empted by the Cable Communications Act of 1984, which forbids state regulation of "rates for the provision of cable services." CTANY also sought an injunction barring the state from enforcing the regulation.

On April 19, 1991, the district court, ruling from the bench, rejected CTANY's argument. The court reasoned that a downgrade to a lower tier amounted to the removal

                of cable services, not their provision, since the customer after a downgrade had fewer channels than before, and no new channels.   Accordingly, the court found that the pre-emption provision of the Cable Act did not apply and granted summary judgment to New York.   This appeal followed
                

II

Before turning to the merits of the case, we must determine whether the district court had jurisdiction to hear CTANY's challenge in the first instance. Although neither side has raised the issue, the parties may not confer subject matter jurisdiction on the court by consent. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982). Instead, we must consider the question sua sponte whenever there is an indication that jurisdiction is lacking. Bender v. Williamsport Area School Dist., 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986); Hughes v. Patrolmen's Benevolent Assoc., 850 F.2d 876, 881 (2d Cir.), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988).

CTANY is seeking declaratory and injunctive relief from the state ban on downgrade charges on the ground that the Cable Act pre-empts the state regulation. In evaluating the jurisdictional basis for this action, we first note that the Declaratory Judgment Act, 28 U.S.C. § 2201, does not expand the jurisdiction of the federal courts. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 70 S.Ct. 876, 878, 94 L.Ed. 1194 (1950). Accordingly, we must evaluate this declaratory judgment action under traditional jurisdictional doctrines.

It is well established that to invoke federal question jurisdiction, a federal issue must appear on the face of a well pleaded complaint. Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 3232, 92 L.Ed.2d 650 (1986); Franchise Tax Bd. v. Construction Laborers Vacation Trust, 463 U.S. 1, 9-10, 103 S.Ct. 2841, 2846-47, 77 L.Ed.2d 420 (1983). A complaint that merely anticipates that the defense will raise a federal issue does not create federal jurisdiction. Id. at 10, 103 S.Ct. at 2846. Even where, as here, the federal defense (pre-emption) is asserted affirmatively in a declaratory judgment action, if the underlying coercive lawsuit that the declaratory judgment action seeks to block (here a suit by New York to enforce its rate regulation) would not present a federal issue, then the declaratory judgment procedure cannot furnish the federal courts with jurisdiction. Id. at 16, 103 S.Ct. at 2849. Accordingly, if CTANY were seeking only declaratory relief, we would be required to determine whether a suit by New York to enforce its cable regulation would present sufficient federal issues to create federal subject matter jurisdiction. See Nashoba Communications v. Town of Danvers, 893 F.2d 435, 438 (1st Cir.1990) (no substantial federal issue in declaratory judgment action brought by cable company asserting that Cable Act pre-empts municipality's enforcement...