People's Cable Corp. v. City of Rochester

• Decision Date: 05 May 1972
• Citation: 334 N.Y.S.2d 972,70 Misc.2d 763
• Parties: PEOPLE'S CABLE CORPORATION, Plaintiff, v. The CITY OF ROCHESTER et al., Defendants.
• Court: New York Supreme Court

Page 972

334 N.Y.S.2d 972

70 Misc.2d 763

PEOPLE'S CABLE CORPORATION, Plaintiff, v. The CITY OF ROCHESTER et al., Defendants.

Supreme Court, Monroe County.

May 5, 1972.

[70 Misc.2d 764] Harris, Beach & Wilcox, Rochester (Thomas P. Moonan, Rochester, J. Montieth Estes and David J. Benson, Rochester, of counsel), and Levy & Levy, Rochester (Divid M. Levy, Rochester, of counsel), for plaintiff.

Johnson, Reif & Mullan, Rochester (John A. Titus, Rochester, of counsel), for defendants.

DECISION

JACOB ARK, Justice.

This is an action for a declaratory judgment.

The plaintiff, People's Cable Corporation (herein People's) and defendant, Cable Television of Rochester, Inc. (herein Cable), were organized pursuant to Section 3 of the Transportation Corporations Law to operate a community antenna television (CATV) system.

The plaintiff and others, not parties to this action, applied to the defendant City of Rochester (herein City), for the right to conduct a CATV system within the city. Their applications were denied when the City Council adopted an ordinance (No. 69--597) on December 30, 1969 that granted this right to the defendant Cable.

The ordinance was introduced in the city Council on March 26, 1968 and was referred to the Law and Public Utility Committee. It remained there until after the political control of the council changed as a result of the November 1969 election when it was brought out of committee at a council meeting held on December 9, 1969. This session was adjourned to December 15, 1969 for the purpose of conducting a public hearing to allow applicants who sought to operate a CATV system to present their views.

On December 10, 1969 the Mayor of the City of Rochester advised the plaintiff that the City Council would hold a public hearing on applications for the operation of a CATV system on December 15, 1969, and forwarded to the plaintiff a draft ordinance and information sheet upon which all applications would be evaluated in terms of the criteria contained therein. On December 15, 1969 the plaintiff submitted a proposal. There is no dispute that the plaintiff met the requisites for applicants. The plaintiff agreed to pay the City annually a fee of 5% Of the gross revenue with a minimum of $10,000.00 and paid a required non-refundable filing fee of $500.00. This fee was accepted by the City, but returned to the plaintiff after this action was commenced on January 15, 1970.

Ordinance No. 69--597 adopted by the Council on December 30, 1969 states that it granted a non-exclusive license to the defendant Cable for the 'right and privilege to construct, erect, operate and maintain, in, upon, along, across, above, over and under the streets alleys, public ways and public places now laid out or dedicated, and all extensions thereof and additions thereto, in the City, poles, wires, cables, underground conduits, manholes, and other television conductors and fixtures necessary for the maintenance and operation in the City of a CATV system for the interception, sale and distribution of television and radio signals.'

The ordinance provides that the defendant Cable was to pay the City annually an amount equal to 4% Of the gross receipts up to and including the amount received from 40,000 subscribers and 5% Of the operating gross receipts over 40,000 for the use of the streets and other facilities of the City.

The city council consisted of nine members, five of whom voted for the ordinance, two against it and two abstained from voting. On January 6, 1970 defendant Cable accepted the conditions set forth in the ordinance, as provided by Section 23 thereof, and stated that it would pay an additional 1% Of the gross revenue of $10,000.00, whichever was greater, and after ten (10) years it would consent to renegotiate payments to be made to the City. The defendant Cable has strung its own wires in the city on poles leased from public utility companies. The only other proposal received in evidence was submitted by the Monroe Cablevision, Inc., which company was acquired by the plaintiff in January 1971. It offered a smaller sum to the City than the plaintiff and defendant Cable.

The plaintiff seeks to annul this ordinance on the ground that the City granted a franchise to defendant Cable in violation of Section 5--24 of the City Charter that provides for the granting of franchises. The defendants maintain that since defendant Cable is a corporation organized under the Transportation Corporations Law, by virtue of Section 27 of that statute it has a franchise to 'erect, construct and maintain the necessary fixtures for its lines upon, over or under any of the public roads, streets and highways', provided that it shall 'first obtain from the common council * * * permission to use the streets within such city'. They state that the ordinance and the defendant Cable's acceptance of its terms and conditions gave defendant Cable the legal right to operate a CATV system in the City of Rochester, as the ordinance is the required permission under the statute.

Two provisions of the City Charter are involved in this case: Section 5--23 sets forth further legislative powers of the City Council to adopt ordinances, and by subdivision C thereof provides:

'To grant all rights or franchises to use the streets highways and public places or any part thereof or the space above or underneath them, for any purpose whatever, upon such terms and conditions as it deems proper.

'All franchises or rights to use the streets, highways and public places, acquired by any corporation and not exercised, in whole or in part, which are repealable, are hereby repealed and made subject to the provisions of subdivision C of this section. All franchises and charters of corporations hereafter granted shall be taken subject to subdivision C of this section.'

(Section 20 of the General City Law grants specific powers to cities and Subdivision 10 thereof provides: 'To grant franchises or rights to use the streets, waters, water front, public ways and public places of the city.')

Section 5--24 of the City Charter provides for the granting of franchises and states in part:

'An ordinance authorizing any franchise must be passed by a vote of three-fourths of all the members of the council and must provide for a disposition of the same at public auction to the highest bidder, under proper regulations for the protection of the city and after public notice to be published once each week for three weeks in the official papers.'

(Section 23, subd. 2, par. b of the General City Law contains similar provisions for the granting of franchises.)

A corporation is formed under Section 3 of the Transportation Corporations Law by filing a Certificate of Incorporation with the Department of State pursuant to Article 4 of the Business Corporation Law. It receives its corporate franchise in the same perfunctory manner as any business corporation. However, under Section 27 of the Transportation Corporations Law a corporation is given certain powers, and involved in this lawsuit is whether the provision that requires the permission of the common council of a city, which is a prerequisite to the use of the streets for its equipment and lines, constitutes a franchise.

The right to exist as a corporation and the privilege of using public streets for its equipment and lines are both called franchises, but each grants a different privilege.

Bankers Trust Co. v. City of Yonkers et al., 255 App.Div. 173, 178, 6 N.Y.S.2d 883, 888, affd. 280 N.Y. 738, 21 N.E.2d 514 (1939), was concerned with a city ordinance that revoked franchises to operate street car lines. The court said: 'In considering the issue so presented, there should be noted the difference between the right to operate a railroad under its articles of incorporation, called a franchise, and the consent of a municipality required under the State Constitution (Art. 3, § 18), which is also generally called a franchise (secondary franchise, Village of Stillwater v. Hudson Valley R. Co., 255 N.Y. 144, 174 N.E. 306).'

In Village of Stillwater v. Hudson Valley R. Co., pp. 150--151, 174 N.E. p. 308, supra, the court held: 'The secondary franchise, which in these cases is the consent or permission given by local authorities for the use of its streets or highways, is not the franchise by and under which the corporation exists and has the right to function as a corporate being.'

In New York Central & H.R.R. Co. v. City of New York, 202 N.Y. 212, 218, 95 N.E. 638, 639 (1911), the court made a distinction between the duration of the franchise of a railroad's right to occupy the streets and the limitation that applied to its corporate existence.

The consent of the municipality to use its streets has a long ligislative history. The courts have recognized that this permission constitutes a franchise that must be granted on the local level.

In Ghee v. Northern Union Gas Co., 158 N.Y. 510, 53 N.E. 692 (1899), the question was whether under the charter of the City of New York the 'municipal authorities', whose consent was required to lay conductors for conducting gas through the streets of the City of New York under the Transportation Corporations Law, was the head of a department or the common council. The court said (p. 513, 53 N.E. p. 693): 'It is true that the franchise comes from the state, but the act of the local authorities, who represent the state by its permission and for that purpose, constitutes the act upon which the law operates to create the franchise. The state might grant the franchise directly to the corporation without the consent of the local authorities, and has done so in many instances; but the tendency of later years, which is well grounded in reason, is for the state to confer upon the local municipal authorities the right to represent it in the matter of granting franchises to the extent that the final act necessary to the creation of franchises must be exercised by such authorities. The...