Century Federal, Inc. v. City of Palo Alto, Cal.

• Decision Date: 03 December 1986
• Docket Number: No. C-85-2168 EFL.,C-85-2168 EFL.
• Parties: CENTURY FEDERAL, INC., a California Corporation, Plaintiff, v. CITY OF PALO ALTO, CALIFORNIA, a Municipal corporation; City of Palo Alto Utilities, a Municipal utility; City of Menlo Park, California, a Municipal corporation; and City of Atherton, California, a Municipal corporation, Defendants.
• Court: U.S. District Court — Northern District of California

648 F. Supp. 1465

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

No. C-85-2168 EFL.

United States District Court, N.D. California.

December 3, 1986.

Harold R. Farrow, Farrow, Schildhause, Wilson & Rains, Oakland, Cal., for plaintiff.

Jerome B. Falk, Jr., Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, Cal., for Palo Alto and Atherton.

John R. Cosgrove, Jorgenson, Cosgrove, Siegel & McClure, Menlo Park, Cal., for Menlo Park.

ORDER GRANTING PARTIAL SUMMARY JUDGMENT

LYNCH, District Judge.

This action involves an aspiring cable television operator's first amendment challenge to the defendant municipalities' use of an exclusive franchising arrangement to limit to one the number of cable operators granted access to those facilities necessary to install cables within the defendants' boundaries. Plaintiff now moves for an order granting partial summary judgment on the issue of liability, asking this Court to hold as a matter of law that such a government-imposed restriction on the number of cable speakers is facially invalid under the first amendment. After considering oral argument and reviewing the extensive briefs and exhibits filed on both sides, this Court hereby grants plaintiff's motion for partial summary judgment. In doing so, the Court holds only the following: First, that under the undisputed facts of this case, the insignificant, if any, increase in disruption to the public domain resulting from the initial installation of more than one cable system, as opposed to a single system, does not constitute a substantial or important governmental interest so as to justify the suppression of all cable speakers except the one to which the municipalities grant permission to speak; and second, that because cable television is more closely analogous to newspapers than the broadcast media, the fact that the cable television market in a proposed service area is a natural monopoly does not justify greater governmental regulation of cable operators than would otherwise be allowed under the first amendment.¹

I. Background

Plaintiff Century Federal, Inc., is an aspiring cable television (hereinafter "CTV") operator. The defendants (hereinafter "the Cities") are three California municipalities, Atherton, Menlo Park, and Palo Alto, and a utility company owned by Palo Alto. Plaintiff attempted to enter the CTV business in each of the Cities, but was refused a business license and was told that it must participate in the franchise selection process conducted by Palo Alto on behalf of all the Cities. Plaintiff also sought permission to use the utility poles owned by the Pacific Telephone and Telegraph Company, the Pacific Gas and Electric Company, and the defendant City of Palo Alto Utilities, but was refused "pole attachment services" because it had no CTV operating franchise.²

The franchise selection process conducted by the Cities had two parts. First, the Cities issued a Request for Proposals (hereinafter "RFP"). This document specified the minimum requirements that an applicant must meet in order to be considered for a franchise.³ The RFP also requested certain technical, construction, ownership, and financial information concerning the applicant and its proposed system. The Cities planned subsequently to evaluate the applicants in a number of categories, including service and rates, technical/construction, financial, local commitment, and ownership/structure.

The second phase of the selection process involved negotiations with one or more of the so-called most qualified applicants. Although the RFP guidelines expressly referred to the granting of a "nonexclusive" franchise, implying that the Cities might grant a franchise to more than one CTV operator, it is undisputed that the Cities intended to grant a franchise to only one operator, at least initially. See Central Telecommunications, Inc. v. TCI Cabletelevision, Inc., 800 F.2d 711, 712 n. 1 (8th Cir.1986) (under a similar RFP, court refers to such franchises as "de facto exclusive").

Of the four CTV operators who answered the RFP, which did not include plaintiff, the Cities targeted two for further negotiations. On October 7, 1985, the Cities awarded a franchise to Cable Coop, which, at least up until the date of oral argument on this motion, had not yet begun to install its CTV system.

Rather than participate in the RFP, plaintiff originally filed suit in this Court in September 1983, alleging that the franchising process as a whole violated the antitrust laws and the first amendment. See Century Federal, Inc. v. City of Palo Alto, 579 F.Supp. 1553 (N.D.Cal.1984). On the antitrust claims, the Court granted defendants' motion to dismiss on the ground that the defendant municipalities were immune from liability for the challenged conduct. Id. at 1561. The Court denied the Cities' motion on the first amendment claims, however, finding that plaintiff's pleadings alleged a cognizable constitutional deprivation that gave rise to significant factual questions that could not be resolved on the pleadings alone. Id. at 1565.

Subsequent to the above rulings, in January 1985, in response to the passage of the Cable Communications Policy Act of 1984, 47 U.S.C. sections 521-611 (Supp.1986), this Court dismissed plaintiff's original first amendment claims without prejudice.⁴

In early March 1985, however, the Ninth Circuit decided Preferred Communications, Inc., v. City of Los Angeles, 754 F.2d 1396 (9th Cir.1984), aff'd, ___ U.S. ___, 106 S.Ct. 2034, 90 L.Ed.2d 480 (1986) (hereinafter "Preferred I"). Reversing in part the district court's granting of a motion to dismiss, the Ninth Circuit held in a wide-ranging opinion that a municipality could not "limit access by means of an auction process to a given region of a City to a single cable television company, where 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." Preferred I, 754 F.2d at 1411.

Within a few days after the release of the Ninth Circuit's decision, plaintiff filed the instant action, reasserting its first amendment claim.⁵ The parties stipulated that the pleadings and record of the prior action would be considered a part of this new action.

After the United States Supreme Court granted certiorari on the Preferred I decision, this Court stayed the disposition of the instant action pending the Supreme Court's decision. In City of Los Angeles v. Preferred Communications, Inc., ___ U.S. ___, 106 S.Ct. 2034, 90 L.Ed.2d 480 (1986) (hereinafter Preferred II), the Supreme Court affirmed the judgment of the Ninth Circuit "on a narrower ground," id. 106 S.Ct. at 2036, holding only that a CTV operator "seeks to engage in activities that plainly implicate the First Amendment," id. at 2037, and refusing to decide the applicable first amendment standard solely on the pleadings. Id. The Court left open the question of "whether the characteristics of cable television make it sufficiently analogous to another medium to warrant application of an already existing standard or whether those characteristics require a new analysis." Id. at 2038 (Blackmun, J., concurring).⁶

Two weeks after the Supreme Court's decision, plaintiff filed the instant motion for partial summary judgment. Essentially, plaintiff's position is that the suppression of all cable speakers except one cannot be justified by any important or substantial governmental interest.⁷ The Cities, on the other hand, propose five interests that are furthered by a franchising process that allows access to only one CTV system:⁸ 1) minimizing disruption of the public domain; 2) promoting first amendment values by ensuring that their residents, who allegedly live in a market that will economically support only one CTV operator (i.e., a natural monopoly), will receive cable service from that CTV operator that will provide the most reliable and highest quality service; 3) preventing "cream skimming," which is the wiring of only affluent, and therefore more profitable, portions of the franchise area; 4) ensuring community and commercially-leased access channels; and 5) encouraging the development of state-of-the-art cable systems with adequate channel capacity.

II. Standard of Review on a Motion for Summary Judgment

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Consequently, the "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., ___ U.S. ___, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986) (emphasis in original). The Supreme Court has described the district court's review of the facts as a two-step process. First, the court must determine whether a particular fact is material, that is, a fact that will affect the outcome of the suit under the applicable substantive law. Id. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. Second, if a fact is material, the court must determine if the dispute about the material fact is "genuine," that is, "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

Accordingly, this Court's initial inquiry must be on the materiality of the...