Erie Telecommunications, Inc. v. City of Erie, Pa.

Decision Date28 July 1988
Docket NumberNo. 87-3648,87-3648
Citation853 F.2d 1084
CourtU.S. Court of Appeals — Third Circuit

David J. Saylor (argued), Robert Corn-Revere, Hogan & Hartson, Washington, D.C., James D. McDonald, Jr., Gary Eiben, The McDonald Group, Erie, Pa., for appellant.

T. Warren Jones, James R. Walczak (argued), Dale E. Huntley, MacDonald, Illig, Jones & Britton, Erie, Pa., for appellee.

Stefan Presser, Legal Director, ACLU of Pennsylvania, Philadelphia, Pa., for amicus curiae ACLU of Pennsylvania.

Joseph Van Eaton (argued), Spiegel & McDiarmid, Washington, D.C., Michael I. Meyerson, University of Baltimore School of Law, Baltimore, Md., for amici curiae Albert S. Richardson, OC/UCC and Alliance for Communications Democracy.

L. Andrew Tollin, Wilkinson, Barker, Knauer & Quinn, Washington, D.C., for amici curiae The Media Institute.

Henry L. Baumann, Benjamin F.P. Ivins, National Ass'n of Broadcasters, Washington, D.C., for amicus curiae Ass'n of Nat. Broadcasters.

J. Laurent Scharff, Jack N. Goodman, James M. Smith, Pierson, Ball & Dowd, Washington, D.C., for amicus curiae Ass'n of Independent Television Stations, Inc.

Before HUTCHINSON, SCIRICA and GARTH, Circuit Judges.


GARTH, Circuit Judge:

Appellant Erie Telecommunications, Inc. ("ETI") commenced this action in the United States District Court for the Western District of Pennsylvania against the City of Erie, Pennsylvania ("City"), challenging the validity of a franchise agreement and a related side access agreement entered into by the parties in 1980. The agreements, each for a term of ten years, awarded ETI a cable television franchise in exchange for an initial payment of $3 million, in addition to various other types of consideration.

In the district court, ETI claimed that the franchise and access agreements violated ETI's first amendment right of free expression because they imposed a money- and content-based prior restraint on ETI and because they singled out ETI from other members of the media in a discriminatory manner. ETI also claimed that the franchise and access agreements violated its fourteenth amendment right to equal protection under the law by impermissibly burdening its exercise of a fundamental right. The district court rejected ETI's claims, and thus upheld the validity of the agreements between ETI and the City.

On appeal, ETI raises the same constitutional claims it raised before the district court. In addition, ETI now argues that the district court erred in holding that the 1980 franchising process estopped ETI from raising claims under the Cable Communications Policy Act of 1984, 47 U.S.C. Sec. 521 et seq. (Supp. II 1984) ("Cable Act") and FCC regulations.

We have reviewed the record in this matter and are satisfied that ETI's execution of a Mutual Release and Covenant in January 1984 1--in which ETI agreed that the franchise agreement was "valid, binding and of full force and effect," and agreed to release the City from "any and all claims ... relating to ... the Franchise"--is dispositive of this case. We therefore find it unnecessary to reach the constitutional and estoppel claims asserted by ETI and will affirm the order filed by the district court on August 4, 1987, as amended by the district court's order dated September 3, 1987. 2


In 1979, the City of Erie began to investigate and publicly discuss the idea of granting a cable television franchise to a cable operator as a means of raising revenue for the City. Within one year, the City hired a professional consultant to aid it in preparing a comprehensive cable television ordinance and in negotiating a franchise agreement. On April 1, 1980, the City enacted an ordinance outlining the terms that would be required of potential cable operators and issued a formal "Request for Proposals." Six cable television companies responded to the request.

In June 1980, ETI, whose principal shareholder is American Television and Communications Corporation ("ATC"), the nation's second largest cable operator, submitted its proposal to the City, offering the sum of $675,000 in prepaid franchise fees and five percent (5%) of ETI's gross revenues over the ten year life of the franchise. ETI later revised its proposal by raising its prepayment of fees to $900,000, and ultimately agreed to make a prepayment of $2,700,000. After public hearings were held, at which each of the six cable companies offered a proposal, the Erie City Council selected ETI and Teleprompter of Erie, Inc., ("Teleprompter"), one of ETI's competitors, as the two companies with which the City would engage in final negotiations. On October 29, 1980, the City awarded the City's cable franchise to ETI.

Shortly thereafter, on November 11, 1980, the City and ETI entered into the franchise agreement and a related access agreement, 3 both of which were to remain in effect until December 1990. The franchise agreement contained various prepayment and future fees provisions and provided, in section 29(A), that:

As compensation for permission to use the streets and public ways of the City for the construction, operation, maintenance, modification and reconstruction of a Cable System, and for the City's costs in establishing a regulatory program for Grantee [ETI], the Grantee shall pay to the City an annual amount equal to five percent (5%) of the Grantee's Gross Annual Receipts, until disapproved by the FCC. 4

App. at 373. The district court described the details of the franchise agreement as follows:

The agreement provides for the satisfaction of this 5% assessment through two distinct means. Under Sec. 29(D)(1), prepayment of those fees required under Sec. 29(A) was due in the amount of $2,700,000. Further, under Sec. 29(D)(2), a minimum of $100,000 per year or the 5% assessment, whichever was greater, is due for each year the agreement covers. However, no payment greater than $100,000 was due until all prepaid franchise fees had been recovered by ETI. Moreover, a $150,000 fee was imposed for direct and indirect expenses incurred by the City in the franchising process and an additional $150,000 fee became due as compensation for the City's aid in securing space for ETI's cables on existing utility poles.

Erie Telecommunications, Inc. v. City of Erie, 659 F.Supp. 580, 583 (W.D.Pa.1987).

The franchise and access agreements also contained provisions regarding access requirements. The franchise agreement called for provision of "in-kind" dedicated channel capacity and television production equipment and training by ETI. The access agreement contained the fee structure for the provision of access channels. These provisions, taken together, required ETI to make a prepayment of $30,000 and subsequent payments of $90,000 during the first year of the franchise term, $10,000 per month for the first three years, and $25,000 per year for the remainder of the agreement term. In addition, subject to certain qualifications, the access agreement required ETI to pay one percent of its gross receipts for use in access programming. After the agreements had been signed, ETI made a $3 million payment to the City and installation of the cable system commenced.

In January 1981, Teleprompter, the cable company that had been outbid by ETI and thus had not been granted the right to enter into a cable franchise agreement with the City, filed suit against ETI and the City in the United States District Court for the Western District of Pennsylvania, claiming that ETI's franchise agreement with the City was invalid. See Teleprompter of Erie, Inc. v. City of Erie, 537 F.Supp. 6 (W.D.Pa.1981). 5 In January 1984, the Teleprompter litigation was settled by Judge Weber's entry of a Consent Order and the execution of a "Mutual Release and Covenants" by Teleprompter, ETI and the City. App. at 812. 6

In the release, all parties, including ETI, agreed that the franchise agreement was "valid, binding and of full force and effect." App. at 816. The parties also agreed to "... release, remise, quitclaim, and forever discharge the City of Erie ... from any and all claims ... relating to ... the Franchise...." Id. at 819.

In April 1985, ETI discontinued payment of franchise fees to the City and brought suit challenging the validity of the franchise agreement, the access agreement, and the City's cable television ordinance. In its Amended Complaint, ETI sought injunctive and declaratory relief, as well as damages and the repayment of excess franchise and access fees tendered to the City. App. at 200-31.

In the district court, the City raised numerous affirmative defenses. The City's primary defenses fell into three categories. The City argued first that because ETI freely entered into the franchise and access agreements, ETI was precluded, under the doctrines of waiver and estoppel, from challenging the legality and enforceability of those agreements. The City next asserted that ETI's position in the Teleprompter case--in which ETI defended the propriety of the bidding process--should estop ETI from asserting that the franchise agreement was invalid or unenforceable. Finally, the City argued that ETI's claims for damages under 42 U.S.C. Sec. 1983 were barred by the statute of limitations. The City also counterclaimed for breach of contract and for fraud.

In reviewing the City's motion for partial summary judgment and ETI's cross motion for summary judgment, the district court rejected all but one of the City's affirmative defenses. First, the district court concluded that "ETI's entering into the franchise agreement neither constitutes a waiver of nor a ground for estopping the assertion of the instant constitutional claims." 659 F.Supp. at 584. It reached that conclusion on the basis of its finding that in 1980, when the franchise agreement was signed, there was considerable "ambiguity and uncertainty" surrounding t...

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