Erie Telecommunications, Inc. v. City of Erie

• Citation: 659 F. Supp. 580
• Decision Date: 15 April 1987
• Docket Number: Civ. A. No. 85-185 Erie.
• Parties: ERIE TELECOMMUNICATIONS, INC., a Pennsylvania Corporation, Plaintiff, v. CITY OF ERIE, a Pennsylvania Municipal Corporation, Defendant.
• Court: United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

659 F. Supp. 580

ERIE TELECOMMUNICATIONS, INC., a Pennsylvania Corporation, Plaintiff, v. CITY OF ERIE, a Pennsylvania Municipal Corporation, Defendant.

Civ. A. No. 85-185 Erie.

United States District Court, W.D. Pennsylvania.

April 15, 1987.

COPYRIGHT MATERIAL OMITTED

David J. Saylor, Robert L. Corn, Hogan & Hartson, Washington, D.C., James D. McDonald, Jr., Gary Eiben, Erie, Pa., for plaintiff.

T. Warren Jones, Dale E. Huntley, MacDonald Illig Jones & Britton, James R. Walczak, Erie, Pa., for defendant.

OPINION

MENCER, District Judge.

This suit involves a challenge to the validity of a cable franchise agreement entered into between plaintiff Erie Telecommunications, Inc. ("ETI") and defendant City of Erie. ETI attacks certain provisions of the agreement as being violative of the first and fourteenth amendments of the U.S. Constitution and seeks redress for these alleged constitutional infringements through the application of 42 U.S.C. § 1983.¹ Additionally, ETI maintains that the agreement contains certain fee provisions which contravene federal statutory authority. Based upon this position, ETI has ceased making payments due to the City of Erie under the franchise agreement. Conversely, the City, assured of the propriety of the agreement, presents a counterclaim seeking damages for ETI's breach of contract. Instantly, before this Court, are the City's motion for partial summary judgment with respect to all counts of ETI's complaint and ETI's own crossmotion for summary judgment.²

After review of this record, the Court concludes that as a matter of law, the instant undisputed facts warrant a grant of partial summary judgment in favor of defendant City of Erie.

I. FACTUAL BACKGROUND

In May 1980, in an effort to generate revenue, the City of Erie issued a Request For Proposals for the award of a cable television franchise. The proposal outlined the terms that would be requested of potential cable operators. The ordinance provided that the grantee pay the City an annual franchise fee equal to five percent of the operator's gross annual receipts, with a minimum payment of $100,000 per year. It also stated that the cable operator would be expected to purchase municipal bonds issued by the City, in the amount of $1 million as a security fund and another $1 million construction bond, and to pay the City $100,000 to cover franchising process expenses. Further, the ordinance noted that a "Side Agreement" would mandate that the grantee provide and support local "access" programming.³ Support for the programming included access fees of $120,000 upon the award of the franchise, $240,000 thereafter in monthly installments of $10,000, followed by monthly payments based upon a percentage of gross receipts.

In August 1980, public hearings were held at which each of six applicants offered proposals for the awarding of the franchise. Plaintiff ETI, whose principal shareholder American Television and Communications Corporation is the nation's second largest cable systems operator, was one of those applicants. On October 22, 1980, after negotiations had fallen through with another applicant, Erie Comcast Cablevision, Erie City Council voted to negotiate simultaneously with ETI and Teleprompter of Erie, Inc. On October 29, 1980, council decided that ETI would be awarded the city's cable television franchise.⁴ The City of Erie and ETI executed a cable franchise agreement on November 11, 1980 for an initial term ending December 31, 1990.⁵

The final negotiated franchise agreement details various prepayments and future fees. Section 29(A) of the agreement provides:

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.⁶

The agreement provides for the satisfaction of this 5% assessment through two distinct means. Under § 29(D)(1), prepayment of those fees required under § 29(A) was due in the amount of $2,700,000. Further, under § 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.

The franchise and side agreements also specify certain access requirements. Under the franchise agreement, "in-kind" requirements of dedicated channel capacity and television production equipment and training are imposed on ETI. The side agreement outlines the fee structure for the maintenance of access channels. Essentially, the agreement demands of ETI a prepayment of $30,000, followed by payments of $90,000 during the remainder of the first year of the franchise term, $10,000 per month for years one through three, and $25,000 per year until expiration of the franchise agreement. Additionally, subject to certain exceptions and after recovery of the prepaid franchise fees, the side agreement requires ETI to pay 1% of its gross receipts for access programming use.

Aside from the ETI's various prepayments, ETI maintains that from November 1980 until the initiation of the instant suit, $540,000 in franchise and access support payments have been made. Since April 1985, ETI has refused to honor the fee provisions of the franchise agreement.

II. AFFIRMATIVE DEFENSES

Initially, before addressing the merits of ETI's claims, the Court must determine the validity of the City's three affirmative defenses. First, by virtue of its conduct in securing the cable franchise, the City argues that ETI has waived or must be estopped from challenging the legality and enforceability of the franchise agreement. Second, the City maintains that the legal position taken by ETI in the case of Teleprompter of Erie, Inc. v. City of Erie, an action challenging the propriety of the franchise bidding procedure, should bar ETI from asserting that the franchise agreement is invalid or unenforceable. Finally, the City asserts that ETI's claims for damages under 42 U.S.C. § 1983 are barred by the applicable statute of limitation. These contentions will be addressed seriatim.

A. Waiver or Quasi-Estoppel by Virtue of the Franchise Agreement

1. ETI's Constitutional Claims

In support of its motion for partial summary judgment, the City advances an argument based on quasi-estoppel. According to the City, ETI not only proposed the contractual terms that it is presently challenging, but also received substantial benefit from the franchise agreement. Maintaining that it has relied to its detriment on ETI's conduct, the City argues that to permit ETI to benefit from its recent change in position would be unconscionable.

ETI does not directly address the City's estoppel argument, but instead responds to the City's motion by asserting that it has not waived its right to challenge the constitutionality of the fee agreement. ETI contends that the condition precedent to waiver of a constitutional right — voluntary relinquishment of a known right — has not been satisfied. Additionally, ETI suggests that strong public policy considerations preclude the application of the doctrine of waiver.⁷ The Court concludes 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.

a. Waiver

The seminal case in the area of waiver of first amendment rights is Curtis Publishing Company v. Butts, 388 U.S. 130, 87 S.Ct. 1975, 18 L.Ed.2d 1094 (1967). In that case the United States Supreme Court focused on the defendant publishing company's knowledge of available constitutional defenses. Finding that the specific issue in the case had not been clearly resolved prior to New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), the Court refused to conclude that Curtis had knowledge of its constitutional rights. In rejecting the waiver argument the Court held that

the constitutional protection which Butts contends that Curtis has waived safeguards a freedom which is the `matrix, the indispensable condition, of nearly every other form of freedom....' Where the ultimate effect of sustaining a claim of waiver might be an imposition on that valued freedom, we are unwilling to find waiver in circumstances which fall short of being clear and compelling.

Curtis, 388 U.S. at 145, 87 S.Ct. at 1986, 18 L.Ed.2d at 1105, citing Palko v. Connecticut, 302 U.S. 319, 327, 58 S.Ct. 149, 152, 82 L.Ed. 293 (1937).

The standard set forth by the Supreme Court in Curtis offers broad protection against the waiver of first amendment rights. Plainly, the granting of a waiver defense hinges on a party's knowledge of the existence of first amendment rights. The Court's holding clearly rejected the fifth circuit's admonition that a party should be charged with reading "the handwriting on the wall." Curtis, 388 U.S. at 143-44, 87 S.Ct. at 1985, 18 L.Ed.2d at 1104.

Thus, in reviewing the waiver issue this Court must consider whether, in 1980, the law would have recognized a cable company's first amendment challenge to an assertion of excessive franchise fees. In evaluating this issue, the Court is cognizant of the expansion of rights the cable companies experienced in the late 1970s. See, e.g., FCC v. Midwest Video Corp., 440 U.S. 689, 99 S.Ct. 1435, 59 L.Ed.2d 692 (1979) (Midwest Video II).⁸ It is unclear, however, what affect that expansion had on cable operators' first amendment rights in general and the franchise fee...