Time Warner Cable, Inc. v. Hudson, 10–51113.

• Decision Date: 13 January 2012
• Docket Number: No. 10–51113.,10–51113.
• Citation: 55 Communications Reg. (P&F) 271,667 F.3d 630
• Parties: TIME WARNER CABLE, INC.; Texas Cable Association, Plaintiffs–Appellants, v. Paul HUDSON, in His Official Capacity as Chairman of the Public Utility Commission of Texas; Julie Parsley, in Her Official Capacity as Commissioner of the Public Utility Commission of Texas; Barry Smitherman, in His Official Capacity as Commissioner of the Public Utility Commission of Texas, Defendants–Appellees,TCCFUI, Texas Coalition of Cities for Utility Issues; GTE Southwest, Inc., doing business as Verizon Southwest; Southwestern Bell Telephone L.P., doing business as SBC Texas; Grande Communications Networks, Inc., Intervenor Defendants–Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

55 Communications Reg. (P&F) 271

667 F.3d 630

TIME WARNER CABLE, INC.; Texas Cable Association, Plaintiffs–Appellants,

v.Paul HUDSON, in His Official Capacity as Chairman of the Public Utility Commission of Texas; Julie Parsley, in Her Official Capacity as Commissioner of the Public Utility Commission of Texas; Barry Smitherman, in His Official Capacity as Commissioner of the Public Utility Commission of Texas, Defendants–Appellees,TCCFUI, Texas Coalition of Cities for Utility Issues; GTE Southwest, Inc., doing business as Verizon Southwest; Southwestern Bell Telephone L.P., doing business as SBC Texas; Grande Communications Networks, Inc., Intervenor Defendants–Appellees.

No. 10–51113.

United States Court of Appeals, Fifth Circuit.

Jan. 13, 2012.

Held Unconstitutional

V.T.C.A., Utilities Code §§ 66.003(a), 66.004(a, b, b–1) Roger James George, Jr., Trial Atty., George & Brothers, L.L.P., Austin, TX, for Plaintiffs–Appellants.

James Patrick Sullivan (argued), Asst. Sol. Gen., Office of the Atty. Gen., Office of the Sol. Gen., James Carlton Todd, Asst. Atty. Gen., Office of the Atty. Gen., Gen. Lit. Div., Austin, TX, for Defendants–Appellees.Renea Hicks, Law Office of Renea Hicks, Clarence A. West, Atty., Kent Ronald Hance, Hance Scarborough, L.L.P., Austin, TX, Andrew Gerald McBride, Senior Lit. Atty., John E. Barry, Atty., Wiley Rein, L.L.P., Michael K. Kellogg (argued), Kellogg Huber Hansen, Gregory G. Rapawy, Kellogg Huber Hansen, Washington, DC, Javier Aguilar, Gen. Atty., AT&T Services, Inc., Kathleen McElroy LaValle, Jackson Walker, L.L.P., Dallas, TX, for Intervenor Defendants–Appellees.Appeal from the United States District Court for the Western District of Texas.

Before REAVLEY, ELROD and GRAVES, Circuit Judges.

JENNIFER WALKER ELROD, Circuit Judge:

Time Warner Cable and Texas Cable Association appeal the district court's grant of summary judgment that dismissed their claims that a Texas statute violates the First and Fourteenth Amendments of the Constitution or is preempted by federal law. Because the statute unjustifiably discriminates against a small number of incumbent cable providers in violation of the First Amendment, we REVERSE.

I.

A.

A cable provider relies on public rights-of-way and easements to build cable networks and provide video programming services to a municipality's residents. “As a result, the cable medium may depend for its very existence upon express permission from local governing authorities.” Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 628, 114 S.Ct. 2445, 129 L.Ed.2d 497 (1994). Historically, cable providers in Texas obtained that local government permission by negotiating long-term franchise agreements with each municipality. In return for the necessary access to public rights-of-way, municipalities imposed franchise fees and subjected cable operators to extensive regulation, such as requiring that they carry public-access channels and “build-out,” or lay cable in, all of the municipal franchise area.

Beginning in 1984, Congress introduced additional federal regulation to these franchise agreements. For example, federal law requires that the franchising authority “[i]n awarding a franchise ... shall assure that access to cable service is not denied to any group of potential residential cable subscribers because of the income of the residents of the local area in which such group resides,” a practice known as red-lining. 47 U.S.C. § 541(a)(3).

Many Texas municipalities have traditionally received cable services entirely from a single “incumbent” cable operator, often the operator that first installed a cable network for that community. See Tex. Cable & Telecomms. Ass'n v. Hudson, 265 Fed.Appx. 210, 212 (5th Cir.2008). However, incumbent operators began to face competition from overbuilders¹ and telephone companies entering the video services market.² Id. Nevertheless, the cost of negotiating separate franchise agreements with each targeted municipality across the state hindered the ability of new entrants to compete.

In response to this barrier to entry, the Texas legislature enacted Senate Bill 5 (S.B.5), an “Act Relating to Furthering Competition in the Communications Industry,” aimed at reforming the cable service industry in Texas. S.B. 5 creates a new state-level franchising system that obligates the Public Utility Commission (PUC) to grant a franchise for the requested areas if the applicant satisfies basic requirements. See Tex. Util.Code § 66.003. New entrants, like the telephone companies, may obtain a single statewide franchise that avoids the expense and inconvenience of separate municipal franchise agreements across the state. Overbuilders may terminate their existing municipal franchise agreements in favor of the convenience of the statewide franchise. § 66.004(b).³ Incumbent cable providers, on the other hand, cannot similarly opt out for the statewide franchise, until after the expiration of the municipal license. § 66.004(a).⁴

B.

The day after S.B. 5 was signed into law, Texas Cable Association (TCA), a trade organization representing incumbent cable operators in Texas, filed suit against each of the PUC's commissioners. TCA alleged that S.B. 5 violates the First Amendment and the Equal Protection Clause and is preempted by federal anti-redlining law. TCA argued that S.B. 5 singled out five cable operators for discriminatory treatment, depriving them of the convenience of a statewide franchise. In addition, the plaintiff asserted that, because S.B. 5 allowed potential entrants to the cable market to define their own service footprint and required the PUC to grant the franchise, it conflicted with federal anti-redlining law.

Shortly thereafter, four additional parties intervened as defendants: (1) Grande Communications Networks, Inc., the largest overbuilder in Texas, which had terminated its municipal franchises after passage of S.B. 5 in favor of a state-issued franchise; (2) Verizon Southwest, a telephone company that obtained a franchise under S.B. 5 shortly after its enactment; (3) AT&T Texas, another telephone company that acquired a franchise under S.B. 5⁵; and (4) the Texas Coalition of Cities for Utility Issues (TCCFUI), which promotes the interests of Texas municipalities. The PUC defendants and intervenors moved for judgment on the pleadings.

The district court dismissed TCA's claims for lack of ripeness and Article III standing under Federal Rule of Civil Procedure 12(b)(6), determining that TCA failed to show “that the Act will inflict inevitable or even probable harm on its member cable operators at this time.” We reversed and remanded, holding that “[d]iscriminatory treatment at the hands of the government is an injury long recognized as judicially cognizable.” Hudson, 265 Fed.Appx. at 218 (internal quotation marks omitted).

On remand, Time Warner Cable, an incumbent cable provider with numerous unexpired municipal franchises, joined TCA as a plaintiff. Each side moved for summary judgment. After determining that the plaintiffs had established sufficient injury to give them standing, the district court denied the plaintiffs' motion and granted the defendants' motion for summary judgment, determining that S.B. 5 survived intermediate scrutiny. The district court rejected the plaintiffs' argument that federal anti-redlining law in 47 U.S.C. § 541 preempts S.B. 5. This appeal followed.

After the district court granted summary judgment in favor of the defendants but before we heard oral argument, the Texas Legislature passed S.B. 1087. See Tex. Util.Code § 66.004(b–1)–(b–2). That bill modified S.B. 5 by authorizing cable incumbents to terminate their municipal franchises in favor of the statewide license, but only for municipalities with fewer than 215,000 people. Id.⁶ As it currently stands, S.B. 5 allows certain incumbents the ability to apply for a statewide franchise, but the legislation continues to exclude Time Warner and one other TCA member from opting out of their remaining unexpired municipal franchise agreements with cities of over 215,000 people.⁷

II.

Before we address the plaintiffs' arguments on appeal, the industry defendants repeat a threshold argument that this court previously rejected at the motion to dismiss stage: namely, that the plaintiffs have not established Article III standing to complain of S.B. 5 but instead have offered only “speculations” of injury.⁸ We review questions of standing de novo. NAACP v. City of Kyle, Tex., 626 F.3d 233, 236 (5th Cir.2010). As the parties seeking federal court jurisdiction, TCA and Time Warner bear the burden of establishing their standing. See Nat'l Fed'n of the Blind of Tex., Inc. v. Abbott, 647 F.3d 202, 209 (5th Cir.2011).

The standing requirement originates from the Constitution confining federal courts to “Cases” and “Controversies.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (standing “set[s] apart the ‘Cases' and ‘Controversies' that are of the justiciable sort referred to in Article III”). The “irreducible constitutional minimum of standing contains three elements”: injury-in-fact, causal connection, and redressability. Id. at 560–61, 112 S.Ct. 2130.

The industry defendants concentrate primarily on the injury-in-fact element because plaintiffs allegedly failed to prove any concrete economic damages.⁹ The injury-in-fact requirement helps ensure that courts resolve legal questions “not in the rarified atmosphere of a debating society, but in a concrete factual context conducive to a realistic appreciation of the consequences of judicial action.” Valley Forge Christian Coll. v. Ams. United for Separation of Church and State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 70 L.Ed.2d 700 (1982).

As noted above, this court has already decided that TCA's pleadings alleged sufficient injury-in-fact to survive a motion to dismiss. Specifically, we held that TCA claimed sufficient economic and constitutional injury. As to the...