Total TV v. Palmer Communications, Inc.

• Decision Date: 24 October 1995
• Docket Number: No. 94-55112,94-55112
• Citation: 69 F.3d 298
• Parties: , 1995-2 Trade Cases P 71,156, 95 Cal. Daily Op. Serv. 8265, 95 Daily Journal D.A.R. 14,263 TOTAL TV, a Wisconsin Corporation, dba Total TV, Plaintiff-Appellee, v. PALMER COMMUNICATIONS, INC. and Colony Communications, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 298

69 F.3d 298

64 USLW 2286, 1995-2 Trade Cases P 71,156,

95 Cal. Daily Op. Serv. 8265,

95 Daily Journal D.A.R. 14,263

TOTAL TV, a Wisconsin Corporation, dba Total TV, Plaintiff-Appellee, v. PALMER COMMUNICATIONS, INC. and Colony Communications, Inc.,

Defendants-Appellants.

No. 94-55112.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 8, 1995.

Decided Oct. 24, 1995.

Edward P. Henneberry, Esq., Howrey & Simon, Washington DC, Dale J. Giali, Howrey & Simon, Los Angeles, California, for defendant-appellant Palmer Communications Incorporated.

Kathleen A. Marron, Robins, Kaplan, Miller & Ciresi, Minneapolis, Minnesota; and Ernest I. Reveal, Tod R. Dubow, Robins, Kaplan, Miller & Ciresi, Costa Mesa, California, for defendant-appellant Colony Communications, Inc.

Robert M. Whitney, Katherine M. Lunsford, Foley & Lardner, Madison, Wisconsin, and Christopher Q. Britton, Michael R. Weinstein, Ferris & Britton, San Diego, California, for plaintiff-appellee.

Barbara M. Motz, Deputy Attorney General, Los Angeles, California, as amicus curiae in support of plaintiff-appellee.

Spencer R. Kaitz, Jeffrey Sinsheimer, California Cable Television Association, Oakland, California, as amicus curiae in support of defendants-appellants.

Appeal from the United States District Court for the Central District of California.

Before: PREGERSON, POOLE, and D.W. NELSON, Circuit Judges.

POOLE, Circuit Judge:

Appellants, cable television operators Colony Communications, Inc. ("Colony") and Palmer Communications, Inc. ("Palmer"), interlocutorily appeal the district court's denial of their motion to dismiss on federal preemption grounds competitor Total TV's diversity action. We granted permission to appeal pursuant to 28 U.S.C. Sec. 1292(b), and we affirm. ¹

I. Background

Colony is a franchised cable operator that provides cable television services in California and other parts of the United States. Before it was purchased by Colony, Palmer was also a franchised cable operator in California. They are subject to federal regulation as franchised cable operators, under both the Cable Communications Policy Act of 1984, 47 U.S.C. Secs. 521 et seq. (1988) (amended 1992), and the Cable Television Consumer Protection and Competition Act of 1992, 47 U.S.C. Secs. 521 et seq. (Supp. IV 1992) (collectively "the Cable Acts"). Total TV operates as a "cable television dealer" and competes with Colony and Palmer for certain private customers ² in the Coachella Valley of Riverside County, California, but is not subject to federal regulation of its subscriber rates because it is a non-franchised dealer.

This action was originally filed in California state court by Total TV, which maintains that appellants are attempting to drive it out of the Coachella Valley by engaging in below-cost predatory pricing with the intent to destroy competition in violation of the California Unfair Practices Act ("UPA"), Cal.Bus. & Prof.Code Sec. 17043. ³ Total TV seeks monetary damages and an injunction prohibiting appellants from continuing their predatory pricing. Colony and Palmer claim that such relief would prohibit them from charging their current rates, effectively regulating them in contravention of the Cable Acts.

The action was removed by the appellants to the Central District of California on the basis of diversity of citizenship. Colony and Palmer then filed a motion to dismiss Total TV's complaint pursuant to Fed.R.Civ.P. 12(b)(6), based on the express preemption provisions of the Cable Acts. On May 28, 1993, the district court issued a tentative motion granting the motion to dismiss. However, after ordering additional briefing the district court issued an order on September 20, 1993, denying the appellants' motion to dismiss on preemption grounds. On December 20, 1993, the district court certified that order for interlocutory appeal, and on January 21, 1994, we granted appellants' petition to review the order.

II. Rate Regulation

We review de novo a dismissal for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). Everest and Jennings, Inc. v. American Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir.1994). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Id. We also review de novo the district court's decision regarding preemption. See Aloha Airlines, Inc. v. Ahue, 12 F.3d 1498, 1500 (9th Cir.1993) (reviewing the district court's determination that ERISA preempted a state law claim); Holman v. Laulo-Rowe Agency, 994 F.2d 666, 668 (9th Cir.1993) (reviewing the district court's determination that FCIA preempted all state law claims).

The issue of whether the Cable Acts preempt state laws is one of first impression in this Circuit. The 1992 Act provides in relevant part: "no federal agency or state may regulate the rates for the provision of cable services." 47 U.S.C. Sec. 543(a)(1) (Supp. IV 1992). ⁴ We hold that the Cable Acts do not preempt the provisions of the UPA that Total TV invokes because these provisions do not regulate appellants' rates. The UPA is "not a price fixing statute at all. It merely fixes a level below which the producer or distributor may not sell with intent to injure a competitor." People v. Gordon, 105 Cal.App.2d 711, 234 P.2d 287, 292 (1951) (quoting Wholesale Tobacco Dealers Bureau Inc. v. National Candy & Tobacco Co., 11 Cal.2d 634, 82 P.2d 3, 15 (1938)).

Even assuming that Total TV receives the relief it requests, Colony's and Palmer's prices will not be regulated directly and, as long as they do not act with discriminatory purpose, they will be free to "sell [their] merchandise at any price [they] please in the ordinary course of business." Food & Grocery Bureau of So. Cal. v. United States, 139 F.2d 973, 974 (9th Cir.1943). Therefore, the UPA provisions in question do not operate to regulate rates within the meaning of the Cable Acts' preemption clause. Nowhere in the legislative history of either Act is there a suggestion that "rate regulation" includes predatory pricing or price discrimination measures.

Our conclusion is bolstered by the D.C. Circuit's recent decision affirming the F.C.C.'s interpretation that the prohibition of negative option billing is "a consumer protection provision rather than rate regulation." Time Warner Entertainment Co. v. FCC, 56 F.3d 151, 194 (D.C.Cir.1995). The D.C. Circuit concluded that the statutory prohibition of negative option billing did not preempt, but rather coexisted with, state consumer protection laws. Id. at 192-93. Like the UPA, the negative option laws are directed at the seller's conduct rather than the seller's actual rates. Because they do not directly affect rates, they are not rate regulations.

Appellants' reliance on Storer Cable Communications v. City of Montgomery, Ala. is misplaced. 806 F.Supp. 1518, 1542-44 (M.D.Ala.1992) (holding that an ordinance regulating rates charged to subscribers was preempted by the 1984 Cable Act). The statute at issue in Storer not only set particular cable television rates, but was directed specifically at the cable industry in clear violation of the Cable Acts. ⁵ Id.

III. Preemption

The Supremacy Clause invalidates state laws that "interfere with, or are contrary to" federal law. See U.S. Const., Art. VI, cl. 2; Hillsborough County, Fla. v. Automated Medical Labs., 471 U.S. 707, 712-13, 105 S.Ct. 2371, 2374-75, 85 L.Ed.2d 714 (1985) (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 211, 6 L.Ed. 23 (1824)). There are three types of federal preemption of state statutes: (1) express preemption; (2) implied preemption; and (3) preemption that arises because the federal and state statutes conflict, making compliance with both impossible. Hillsborough County, 471 U.S. at 713, 105 S.Ct. at 2375. We consider only the theory of express preemption in this appeal. ⁶

In determining the preemptive scope of the Cable Acts, we must discern and effectuate Congressional intent. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407 (1992) (" '[t]he purpose of Congress is the ultimate touchstone' of preemption analysis") (quoting Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 1189-90, 55 L.Ed.2d 443 (1978)). The Cable Acts were passed to foster competition in the cable industry. See Time Warner, 56 F.3d at 184 ("The government's interest in regulating cable rates is evident--protecting consumers from monopoly prices charged by cable operators who do not face effective competition.").

The UPA complements, not undermines, the Cable Acts. Like the Cable Acts, the UPA was designed to "encourage competition, by prohibiting unfair ... and discriminatory practices by which fair and honest competition is destroyed or prevented." Cal.Bus. & Prof.Code Sec. 17001. Thus, the Cable Acts do not preempt the UPA because the federal laws and the state law share the same purpose. See Inglis v. ITT Continental Baking Co., 668 F.2d 1014, 1050 n. 62 (9th Cir.1981), cert. denied, 459 U.S. 825, 825, 103 S.Ct. 57, 58, 74 L.Ed.2d 61 (1982).

Although under certain circumstances federal regulations have been held to explicitly preempt generally applicable state statutes, see, e.g., Alliance Shippers, Inc. v. Southern Pac. Transp. Co., 858 F.2d 567, 569-70 (9th Cir.1988) (claims brought under California state antitrust statutes preempted by Staggers Railway Act), Congress clearly did not intend the Cable Acts to preempt generally applicable state antitrust laws such as the UPA. By stipulating in Sec. 543(a) of the 1984 Cable Act that a federal agency may not "regulate the rates" for cable services, Congress revealed its intent to limit preemption of state law under the Cable Acts. See 47 U.S.C. Sec. 543(a) (1988) (amended 1992). The Supreme Court has differentiated between the phrases "regulate" and "related to regulation." See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 377, 112 S.Ct. 2031, 2034, 119...