Group W Cable, Inc. v. City of Santa Cruz

Decision Date09 September 1987
Docket NumberNo. C-84-7456-WWS.,C-84-7456-WWS.
Citation669 F. Supp. 954
PartiesGROUP W CABLE, INC., Plaintiff, v. The CITY OF SANTA CRUZ, the County of Santa Cruz, Defendant.
CourtU.S. District Court — Northern District of California

COPYRIGHT MATERIAL OMITTED

Harold R. Farrow, Farrow, Schildhause, Wilson & Rains, Oakland, Cal., Peter C. Smoot, J. Larson Jaenicke, Rintala, Smoot, Jaenicke & Brunswick, Los Angeles, Cal., for plaintiff.

William M. Marticorena, Philip D. Kohn, Heather A. Mahood, Rutan & Tucker, Costa Mesa, Cal., for City & County of Santa Cruz.

Rodney R. Atchison, City Atty., Neal R. Anderson, Asst. City Atty., Atchison, Anderson & Daly, Santa Cruz, Cal., for City of Santa Cruz.

Dwight L. Herr, County Counsel, Office of the County Counsel, Santa Cruz, Cal., for County of Santa Cruz.

MEMORANDUM OF OPINION AND ORDER

SCHWARZER, District Judge.

Plaintiff, Group W Cable, Inc. ("Group W"), brings this action to enjoin defendants, the City and the County of Santa Cruz ("Santa Cruz"),1 from terminating its cable television franchise in the Santa Cruz area. Group W now moves for summary judgment on three grounds: first, that the City of Santa Cruz breached the allegedly automatic renewal provision of the cable television franchise agreement between Group W's predecessor in interest and the City; second, that Santa Cruz's policy of granting only one franchise to operate a cable television system violates both the First Amendment of the United States Constitution and Article 1, §§ 1 and 2 of the California Constitution; and third, that the specific criteria Santa Cruz employed in evaluating proposals for cable franchises abridge Group W's rights under the First Amendment and the California Constitution.

I. BACKGROUND

Group W is the sole operator of a cable television system2 in Santa Cruz under a so-called "non-exclusive" franchise granted by Santa Cruz in May 1966 to Group W's predecessor. Group W serves approximately 37,800 subscribers in Santa Cruz. Its cable system does not, however, extend to areas within Santa Cruz containing approximately 3,118 households. As of 1985, Group W's cable system had a capacity of 35 channels. Its programming consists of a mix of broadcast programming, satellite services such as Cable News Network, pay television services such as HBO, and locally produced programming. Butler Decl., July 18, 1985, ¶¶ 10-12.

The franchise agreement with Santa Cruz expired by its terms in May 1986. In 1982, shortly after Group W acquired the cable system, it attempted to renew the franchise. Despite negotiations stretching over two years, Group W and Santa Cruz could not reach accord on terms for renewal.

In June 1984, Santa Cruz published a Request for Proposals to Provide Cable Television Service ("RFP"), which solicited offers from cable television companies to provide service to the Santa Cruz community. The RFP established minimum criteria for granting a franchise proposal, including that the franchisee provide free access channels for public, governmental and educational or institutional users; provide two-way institutional service capacity; promise basic service to every home in the Santa Cruz service area requesting such service; pay an annual franchise fee of 5% of gross revenue; provide video facilities for free use by local public, educational and governmental programmers; meet certain technical requirements; and provide extensive information relating to financial capability. See RFP. Group W and three other cable companies submitted proposals in response to the RFP.

Group W filed this action against the City and the County of Santa Cruz on November 28, 1984, alleging eleven causes of action. On May 16, 1985 the Court dismissed without prejudice four of the claims3 on the ground that they were not ripe for adjudication as Santa Cruz had not yet granted or denied either Group W's request to renew its franchise or its RFP proposal. The Court dismissed two claims with prejudice4 but denied the motion to dismiss the five remaining claims.5

Group W moved for a preliminary injunction on July 18, 1985 to enjoin Santa Cruz from implementing its RFP and preventing Group W from providing cable services. On September 19, 1985 the parties stipulated that Santa Cruz could implement its RFP but that Group W's participation in the process would not constitute a waiver of its rights under the First Amendment, the Cable Communications Policy Act of 1984 ("Cable Policy Act" or "Act"), 47 U.S.C. § 571 et seq., or any other applicable law.

On September 23, 1986 Santa Cruz denied Group W renewal of its franchise and a new franchise under the RFP procedure. Santa Cruz determined that Group W's RFP application was nonresponsive to the RFP criteria and, in any event, placed last among the four contenders for the franchise. It granted a franchise to Greater Santa Cruz Cable TV Associates, Inc., the contender it considered best able to meet the criteria called for in the RFP.

Group W renewed its motion for a preliminary injunction,6 which the Court granted on October 3, 1986. The parties then stipulated that Santa Cruz would not disrupt or discontinue Group W's cable services until final determination of the merits of this action.

On October 10, 1986 Group W moved for summary judgment on its claim that Santa Cruz's policy of granting a monopoly franchise violated the First Amendment and the California Constitution. Santa Cruz opposed this motion on the merits but argued further that Group W's franchise application did not meet the minimum requirements contained in the RFP. In addition, Group W moved to reinstate its claim that the City of Santa Cruz violated an allegedly automatic renewal provision in Group W's franchise; the Court granted this motion on February 18, 1987.7 As it appeared that Group W's motion for summary judgment would not be dispositive of the entire case, the Court directed the parties to brief the question whether the specific criteria Santa Cruz applied in rejecting Group W's renewal and RFP proposals violated the First Amendment.8

Having considered the arguments advanced in support of and opposition to the motion for summary judgment, the Court concludes, for the reasons discussed in this opinion, (1) that the City's failure to renew the license is not a breach of the franchise agreement, (2) that the policy of granting only a monopoly franchise violates the First Amendment, and (3) that conditioning the award of a franchise on the provision of concessions violates the First Amendment, except that Santa Cruz is entitled (a) to require appropriate evidence of financial responsibility and (b) to charge a reasonable administrative fee and a reasonable fee for Group W's use of public streets and rights of way. What constitutes a reasonable fee will be determined in future proceedings.

II. DISCUSSION
A. Summary judgment

Under Rule 56(c) of the Federal Rules of Civil Procedure, a trial court shall grant summary judgment for the moving party 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." A fact dispute is material only if it must be resolved to decide the motion: "factual disputes that are irrelevant or unnecessary will not be counted as material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Thus, a fact is material if it will affect the outcome of the action under the applicable substantive law. However, even if a disputed fact is material, the dispute must be genuine, that is, "the evidence must be such that a reasonable jury could return a verdict for the nonmoving party." Id. Finally, for purposes of this motion, the court must view the factual evidence in the light most favorable to the nonmoving party. Beckham v. Safeco Ins. Co. of America, 691 F.2d 898, 902 (9th Cir.1982).

B. Breach of the renewal provision

Group W contends that the 1966 franchise agreement between its predecessor and the City of Santa Cruz contains a provision that entitled Group W, upon application to the City, to automatic renewal of its franchise.9 According to Group W, upon filing its application for renewal within the specified time, it became automatically entitled to a franchise from the City under the same terms as the 1966 agreement. This contention is without merit.

This issue turn on the interpretation of a contract, which presents a question of law. In re Beverly Hills Bancorp v. Hine, 649 F.2d 1329, 1334 (9th Cir.1981).

The relevant provision of the 1966 franchise agreement, codified at § 1721 of the Santa Cruz Municipal Code Ordinance, states:

FRANCHISE RENEWAL. Any franchise granted under this or any prior Ordinance, is renewable at the application of the grantee, in the same manner and upon the same terms and conditions as required herein for obtaining the original franchise, except those which are by their terms expressly inapplicable; provided, however, that the Council may at its option waive compliance with any or all of the requirements of section 1720 hereof.

Administrative record, F 000208 (emphasis added).

Group W's interpretation of this provision ignores the highlighted phrase, which obviously refers to the terms and conditions for obtaining a franchise specified elsewhere in the agreement. "A contract is to be interpreted as a whole so as to give meaning to the expressed terms." California Pacific Bank v. Small Business Admin., 557 F.2d 218 (9th Cir.1977). These terms and conditions appear at § 1720, entitled "APPLICATION FOR FRANCHISE." Section 1720 enumerates specific required information concerning the size and location of the cable system and the financial status of the applicant. It also contains the following critical provision:

(b) Upon consideration of any such application, the Council may refuse to grant the requested franchise or
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