Morrison v. Viacom, Inc.

• Decision Date: 27 February 1997
• Docket Number: No. A071263,A071263
• Court: California Court of Appeals Court of Appeals
• Parties: , 1997-2 Trade Cases P 71,886, 97 Cal. Daily Op. Serv. 1491, 97 Daily Journal D.A.R. 2163 Christopher MORRISON et al., Plaintiffs and Appellants, v. VIACOM, INC., et al., Defendants and Respondents.

Page 544

61 Cal.Rptr.2d 544

52 Cal.App.4th 1514, 1997-2 Trade Cases P 71,886,

97 Cal. Daily Op. Serv. 1491,

97 Daily Journal D.A.R. 2163

Christopher MORRISON et al., Plaintiffs and Appellants, v. VIACOM, INC., et al., Defendants and Respondents.

No. A071263.

Court of Appeal, First District, Division 2, California.

Feb. 27, 1997.

As Modified on Denial of Rehearing March 21, 1997.

Joseph M. Alioto, John H. Boone, San Francisco, Michael Dietrick, San Rafael, Jon P. Rankin, Tiburon, for Plaintiffs and Appellants.

George Shapiro, David M. Balabanian, Terry J. Houlihan, Christopher B. Hockett, San Francisco, Shephanie S. Lamarre, for Defendants-Respondents.

HAERLE, Associate Justice.

I. INTRODUCTION

The question presented by this appeal is whether provisions of California's antitrust law prohibiting anticompetitive "tying" practices are preempted by federal law regulating the cable television industry. The trial court found that appellants' state law antitrust claims against a cable operator were preempted and sustained a demurrer to their complaint, without leave to amend. We disagree and reverse the judgment.

II. STATEMENT OF FACTS

On September 22, 1994, appellants filed an antitrust action against respondent, Viacom, Inc., seeking damages and injunctive relief. Appellants are alleged representatives of a class consisting of all persons who have purchased cable television services in San Francisco or Marin County from respondent during the four years prior to the filing of their complaint. The complaint charges respondent with violating California's Cartwright Act by restraining trade in the San Francisco and Marin county markets for cable television services.

According to the complaint, respondent offers customers three distinct categories of services: (1) broadcast channels, consisting of local television channels concurrently available over the non-cable airwaves without charge, such as KGO, KPIX and KRON; (2) satellite cable channels, consisting of geographically remote broadcast television channels and non-broadcast channels such as CNN and ESPN; and (3) premium channels, consisting of non-broadcast channels such as HBO and Showtime.

Appellants allege that respondent has unlawfully restrained trade in violation of Business & Professions Code sections 16720 and 16727 (the Cartwright Act) by illegally tying the sale of satellite channels to the sale of broadcast channels and the sale of premium channels to the sale of both broadcast and satellite channels. In other words, appellants complain that respondent has illegally restrained trade by making the purchase of broadcast channels a prerequisite for the purchase of satellite cable channels and by making the purchase of both broadcast channels and satellite cable channels a prerequisite for the purchase of premium channels.

Respondent demurred to the complaint, arguing that appellants failed to state a cause of action because the antitrust claims alleged in the complaint are preempted by provisions of the Cable Television Consumer Protection and Competition Act of 1992 (Pub.L. No. 102-385 (Oct. 5, 1992) 106 Stat. 1460, 1992 U.S.Code Cong. & Admin.) (the 1992 Cable Act), and the Cable Communications Policy Act of 1984 (Pub.L. No. 98-549 (Oct. 30, 1984) 98 Stat. 2779, as codified in part at 47 U.S.C.A. § 521 et seq.) (the 1984 Cable Act). Respondent argued that its practice of offering customers several "tiers of service" is required by federal law and that, in any event, states are expressly prohibited by the Cable Acts from regulating rates charged by cable operators.

On July 12, 1995, the trial court sustained respondent's demurrer without leave to amend. Judgment was entered on August 21, 1995. Appellants timely appealed.

III. DISCUSSION

Appellants contend the trial court erred by sustaining the demurrer to their complaint; they argue the complaint states valid causes of action because the 1984 and 1992 Cable Acts do not preempt their state Cartwright Act claims. When reviewing a judgment based on an order sustaining a demurrer without leave to amend, we accept as accurate the factual allegations of appellants' complaint. (Endler v. Schutzbank (1968) 68 Cal.2d 162, 165, 65 Cal.Rptr. 297, 436 P.2d 297.) If the complaint states a cause of action, the judgment must be reversed. (Black v. Browne (1940) 39 Cal.App.2d 606, 607-608, 103 P.2d 1012.)

A. The Preemption Doctrine

The preemption doctrine derives from the supremacy clause, which declares that the "laws of the United States ... shall be the supreme law of the land; and the judges in every State shall be bound thereby, anything in the Constitution or laws of any state to the contrary notwithstanding." (U.S. Const., art. VI, cl. 2.)

"Whether federal law preempts state law 'fundamentally is a question of congressional intent....' [Citations.]" (Smiley v. Citibank (1995) 11 Cal.4th 138, 147, 44 Cal.Rptr.2d 441, 900 P.2d 690, affirmed --- U.S. ----, 116 S.Ct. 1730, 135 L.Ed.2d 25.) When addressing a preemption question, we " 'start[ ] with the assumption that the historic police powers of the States [are] not to be superseded by ... Federal Act unless that [is] the clear and manifest purpose of Congress.' " (Cipollone v. Liggett Group, Inc. (1992) 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407; see also Smiley v. Citibank, supra, 11 Cal.4th at p. 148, 44 Cal.Rptr.2d 441, 900 P.2d 690.) "Therefore, courts should proceed on 'the conviction that the proper approach is to reconcile the operation of both statutory schemes with one another rather than holding one completely ousted.' " (Storer Cable Com. v. City of Montgomery, Ala. (M.D.Ala.1992) 806 F.Supp. 1518, 1531, quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware (1973) 414 U.S. 117, 127, 94 S.Ct. 383, 389, 38 L.Ed.2d 348.)

Preemption may arise in three ways. " 'First, Congress can define explicitly the extent to which its enactments pre-empt state law.' [Citations.] 'Second, in the absence of explicit statutory language, state law is pre-empted where it regulates conduct in a field that Congress intended the Federal Government to occupy exclusively.' [Citations.] 'Finally, state law is pre-empted to the extent that it actually conflicts with federal law.' [Citations.]" (Smiley v. Citibank, supra, 11 Cal.4th at p. 147, 44 Cal.Rptr.2d 441, 900 P.2d 690.)

In the present case, the trial court found two types of preemption. First, it concluded that the anti-tying provisions of the Cartwright Act conflict with federal law which compels cable operators to require customers to subscribe to a basic service tier as a prerequisite to providing access to other tiers of service (conflict preemption). Second, the court found that statutory provisions in the 1984 and 1992 Cable Acts prohibiting states from regulating cable company rates explicitly preempt the Cartwright Act claims at issue in this case (express preemption). In addition, respondent contends that the lower court's preemption ruling can be sustained under another provision of the Cable Acts which allegedly expressly precludes states from regulating cable operators' "tiering" decisions.

For the reasons that follow, we hold that the 1992 Cable Act preempts only a portion of appellants' claims and that neither Act precludes appellants from stating a valid cause of action under the Cartwright Act. Therefore, the judgment must be reversed.

B. The 1992 Cable Act Provision Requiring Subscription to a Basic Tier of Service for Access to Other Tiers of Service Conflicts With Only a Portion of the Cartwright Act Claims

The trial court found that appellants' claims are preempted to the extent that they are based on conduct occurring after the enactment of section 543, subdivision (b)(7), of the 1992 Cable Act (section 543(b)(7)). Section 543(b)(7) states in relevant part: "Each cable operator of a cable system shall provide its subscribers a separately available basic service tier to which subscription is required for access to any other tier of service." (§ 543(b)(7)(A).)

Appellants have alleged that respondent violated the Cartwright Act by requiring customers to subscribe to its basic service tier in order to access other tiers of service. This part of the allegedly illegal conduct is expressly required by section 543(b)(7). Thus, it appears appellants' claims are partially preempted. Appellants contend, however, that section 543(b)(7) does not preempt any of their claims because this provision applies only to those cable companies that are regulated under the Cable Act and there is no evidence in the record that respondent is regulated.

Respondent half-heartedly disputes appellants' contention that only cable companies whose rates are regulated are subject to section 543(b)(7). Respondent cites no authority for its contention that all cable operators, whether regulated or not, are subject to section 543(b)(7). The only authority on the subject which has been brought to our attention states that section 543(b)(7) applies only to regulated companies. (See Time Warner Entertainment Co., L.P. v. F.C.C. (D.C.Cir.1995) 56 F.3d 151, 192 .) We are persuaded by the Time Warner court's interpretation of the relevant statute and agree with its conclusion that only regulated companies must comply with section 543(b)(7). (Ibid.)

Respondent next claims that its San Francisco and Marin cable systems are regulated. Indeed, the trial court took judicial notice of documentation which establishes that respondent's San Francisco and Marin county operations are currently being regulated. ¹ Nevertheless, the court's conclusion that appellants' claims are preempted by section 543(b)(7) to the extent they are based on conduct occurring after the enactment of that statute is erroneous in two important respects.

First, the trial court erred by using the date section 543(b) was enacted as the cut off date for appellants' claims rather than determining when respondent actually became subject to...