Century Federal, Inc. v. City of Palo Alto

• Decision Date: 12 October 1988
• Docket Number: No. C-85-2168 EFL.,C-85-2168 EFL.
• Citation: 710 F. Supp. 1559
• Parties: CENTURY FEDERAL, INC., a California corporation, Plaintiff, v. CITY OF PALO ALTO, a municipal corporation, City of Palo Alto Utilities, a municipal utility, City of Menlo Park, a municipal corporation, and City of Atherton, a municipal corporation, Defendants.
• Court: U.S. District Court — Northern District of California

710 F. Supp. 1559

CENTURY FEDERAL, INC., a California corporation, Plaintiff, v. CITY OF PALO ALTO, a municipal corporation, City of Palo Alto Utilities, a municipal utility, City of Menlo Park, a municipal corporation, and City of Atherton, a municipal corporation, Defendants.

No. C-85-2168 EFL.

United States District Court, N.D. California.

October 12, 1988.

Robert M. Bramson, Farrow, Schildhause, Wilson & Rains, Walnut Creek, Cal., for plaintiff.

Dirk M. Schenkkan, Howard, Rice, Nomerovski, Canady, Robertson & Falk, San Francisco, Cal., Jorgenson, Cosgrove, Siegel & McClure, Menlo Park, Cal., for defendants.

ORDER—GRANTING PARTIAL SUMMARY JUDGMENT IN PART AND DENYING PARTIAL SUMMARY JUDGMENT IN PART

LYNCH, District Judge.

The Court has issued a number of opinions in this case and it is therefore unnecessary again to set forth a detailed recitation of the background of this litigation. See Century Federal, Inc. v. City of Palo Alto, 579 F.Supp. 1553 (N.D.Cal.1984) hereinafter Century Federal I, further proceeding, 648 F.Supp. 1465 (N.D.Cal. 1986) hereinafter Century Federal II, further proceeding, No. C-85-2168 (N.D. Cal. Sept. 1, 1987) hereinafter Century Federal III. It is sufficient here to recall that the Court has found that cable television operators such as plaintiff Century Federal are entitled to first amendment protections that are more analogous to those enjoyed by traditional press media such as newspapers than to the much more circumscribed protections accorded broadcast media such as radio and orthodox television. The Court has accordingly determined numerous aspects of the municipal defendants' challenged franchising scheme for cable television¹ to be in violation of the first and fourteenth amendments, most notably because it unjustifiably provided for the granting of a monopoly franchise to one cable company, thereby preventing Century Federal from exercising its rights to speak. See Century Federal II, 648 F.Supp. 1465. The Court has also found unconstitutional franchise provisions regarding 1) "mandatory access channels," which required Century Federal to devote eight of its channels to the speech of others; 2) "universal service," which required plaintiff to speak where the municipal defendants decreed rather than where it chose to; and 3) "state-of-the-art" technology, which required Century Federal to use cable technology of the Cities' choosing. See Century Federal III, No. C-85-2168, at 3-12.

The cross-motions for partial summary judgment now before the Court are for a determination of which of the financial requirements of defendants' franchising scheme are permissible under the first and fourteenth amendments. Plaintiff Century Federal challenges as unconstitutional and unreasonable four of defendants' financial requirements: 1) an annual "franchise fee" of five percent of plaintiff's gross receipts as a cable operator; 2) construction and performance bonds; 3) a "security fund"; and 4) charges for defendants' costs in developing and administering the franchise scheme. The Court will address each of the financial requirements in turn below.

I FRANCHISE FEE

The motions regarding the franchise fee present the general question under what circumstances a municipality may charge a first amendment speaker for speech activity within the municipality's jurisdiction. First, it is of course true that government may not tax or otherwise charge a speaker simply for exercising its constitutional right to speak. As the Supreme Court found in striking a municipality's ordinance requiring the licensing of door to door solicitors:

A state may not impose a charge for the enjoyment of a right granted by the Federal Constitution.... The power to impose a license tax on the exercise of first amendment freedoms is indeed as potent as the power of censorship which this Court has repeatedly struck down.

Murdock v. Pennsylvania, 319 U.S. 105, 113, 63 S.Ct. 870, 875, 87 L.Ed. 1292 (1943) (citations omitted); see also, e.g., id. at 110-117, 63 S.Ct. at 873-77; Cox v. New Hampshire, 312 U.S. 569, 576-78, 61 S.Ct. 762, 766-67, 85 L.Ed. 1049 (1941); Jacobsen v. Crivaro, 851 F.2d 1067, 1071 (8th Cir. 1988); Gannett Satellite Information Network v. Metropolitan Transportation Authority, 745 F.2d 767, 774 (2d Cir.1984); Eastern Connecticut Citizens Action Group v. Powers, 723 F.2d 1050, 1056 (2d Cir.1983) hereinafter ECCAG; Fernandes v. Limmer, 663 F.2d 619, 633 (5th Cir.1981), cert. dismissed, 458 U.S. 1124, 103 S.Ct. 5, 73 L.Ed.2d 1395 (1982); Baldwin v. Redwood City, 540 F.2d 1360, 1370-72 (9th Cir.1976), cert. denied sub nom. Leipzig v. Baldwin, 431 U.S. 913, 97 S.Ct. 2173, 53 L.Ed.2d 223 (1977); cf. Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 586 n. 9, 103 S.Ct. 1365, 1372 n. 9, 75 L.Ed.2d 295 (noting tension between certain aspects of Murdock line of cases and Breard v. Alexandria, 341 U.S. 622, 71 S.Ct. 920, 95 L.Ed. 1233 (1951)); Project 80's, Inc. v. City of Pocatello, 857 F.2d 592, 594-95 (9th Cir. 1988) (distinguishing Breard as predating modern recognition that commercial speech is protected). In light of the Supreme Court's determination that cable television operators' activities "plainly implicate First Amendment interests," City of Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 494, 106 S.Ct. 2034, 2037, 90 L.Ed.2d 480 (1986) (affirming on narrower grounds Preferred Communications, Inc. v. City of Los Angeles, 754 F.2d 1396 (9th Cir.1985) hereinafter Preferred Communications I) hereinafter Preferred Communications II, as well as this Court's previous rulings in this case, the Cities thus cannot and do not now claim that they are entitled to charge plaintiff for the "privilege" of speaking in defendant municipalities Palo Alto and Atherton;² Century Federal has a right to do so guaranteed by the first amendment.

This is not to say, however, that Century Federal is immune from all charges and requirements by the Cities. Thus, reasonable fees to help defray the administrative costs of necessary licensing may be permissible. See, e.g., Cox, 312 U.S. at 576-78, 61 S.Ct. at 766-67; Gannett, 745 F.2d at 774; ECCAG, 723 F.2d at 1056; Baldwin, 540 F.2d at 1371-72. The widely applicable principle "in determining the constitutionality of a license tax is whether the municipality has given something for which it can ask a return." Murdock, 319 U.S. at 115, 63 S.Ct. at 876.

Here, although recognizing that the Cities may not tax speech and effectively conceding that they originally viewed the franchise fee as a kind of tax and that the fee was set without regard to defendants' actual costs caused by or value provided to cable operators,³ the Cities now assert that they are entitled to the franchise fee because it should be viewed as a rent for use of the Cities' property interests in the rights of way over and through which Century Federal's cable must pass.⁴

Plaintiff opposes this argument essentially on the grounds that 1) Century Federal's cable will use none of the Cities' property because it will be strung along routes occupied by the telephone company, Pacific Bell, in public rights of way in which the cities allegedly have no property interests; and 2) even if the Cities do have interests in the rights of way where the cable passes, the Cities' franchise fee nevertheless cannot be justified under the first amendment.

At the outset of assessing these arguments, the Court is faced with the difficulty that because Century Federal has not constructed or definitively designed its cable system it is not possible to ascertain precisely what areas the system will occupy or what rights the Cities have in those particular locations. Nevertheless, given the representations and evidence submitted by the parties, the narrow issues that the Court addresses are sufficiently concrete and distinct for decision.⁵

Plaintiff presently seeks to use only one class of property in which the Cities claim property interests, the public rights of way, and the parties move only for a determination of the Cities' rights to impose their franchise fee based on their alleged ownership of those rights of way. Moreover, as discussed below, the parties do not dispute the documentary evidence on which they ask the Court to base its decision. It is important to note that the Court is not faced with and does not decide any issue regarding the propriety of charges by the Cities for use of other property they hold nor any issue regarding the rights of Century Federal or others to use the rights of way. In this opinion, the Court addresses solely the issues of the constitutionality of the Cities' financial requirements where Century Federal uses only public rights of way and non-municipal property for its cable system.

A. Existence of Municipal Property Interests in the Public Rights of Way

The Cities attempt to justify their franchise fee by asserting that they have property interests in the public rights of way plaintiff seeks to use. Defendants offer uncontroverted evidence of dedications to the public use that are typical of the dedications that define the rights of way throughout the relevant municipality. See, e.g., Defendants' Declaration of William W. Fellman of October 2, 1987, at 2-3, Exhibits B-1, D hereinafter Fellman Declaration.

Century Federal opposes defendants' assertion that such dedications vest property rights in the Cities, relying principally on County of Sacramento v. Pacific Gas & Elec. Co., 193 Cal.App.3d 300, 313-14, 238 Cal.Rptr. 305 (1987) (citation omitted), in which the California Court of Appeal stated that:

Public utility easements arise from the terms of Government Code section 66475,⁶ which provides that as a condition of approving a subdivision map a local government may require the subdivider to dedicate real property for public utility easements. Such easements are not granted in the public streets and highways, but are upon the real

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