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CITY OF OTTAWA v. SAMMONS COMMUNS.

November 4, 1993

CITY OF OTTAWA, ILLINOIS; CITY OF MARSEILLES, ILLINOIS; VILLAGE OF NAPLATE, ILLINOIS; and CITY OF STREATOR, ILLINOIS, Plaintiffs,
v.
SAMMONS COMMUNICATIONS, INC. and SAMMONS COMMUNICATIONS OF ILLINOIS, INC., Defendants.



The opinion of the court was delivered by: CHARLES RONALD NORGLE, SR.

 CHARLES R. NORGLE, SR., District Judge:

 This matter having been tried before the court between June 10 and June 15, 1993, and after hearing the evidence and arguments at trial, the court enters the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52. Judgment is entered in favor of defendants and against plaintiffs on all remaining counts of the complaint for reasons set forth below.

 FINDINGS OF FACT1

 1. The court conducted a bench trial on the remaining counts, I, III, V, and VII, which allege breaches of franchise contract provisions restricting cable television service rate increases. (Tr. at 1, 50, 237, 409; Sch. (a) at P 12). *fn2"

 2. Plaintiffs are four Illinois municipalities: the Cities of Ottawa ("Ottawa"), Marseilles ("Marseilles"), and Streator ("Streator"), and the Village of Naplate ("Naplate") (collectively "municipalities").

 3. The municipalities are located in whole or in part in LaSalle County, Illinois. (Sch. (a) at P 1).

 4. The municipalities claim that defendants Sammons Communications of Illinois, Inc. ("Sammons of Illinois") and Sammons Communications, Inc. ("Sammons Communications") (collectively "defendants"), a cable television provider and its corporate parent respectively, breached certain franchise agreements by charging unreasonable rates for basic cable service. (Final Pretrial Order at 2; Cmplt. at 5-6, 11, 17-18, 22).

 5. The defendants are Delaware corporations licensed to do business in Illinois. (Sch. (a) at P 2).

 6. On June 29, 1992 the court denied defendants' motion for summary judgment, which asserted that their franchises were deregulated between January 1987 and November 1988 by the Cable Communications Policy Act of 1984, 47 U.S.C. § 521 et seq. (the "Cable Act"). City of Ottawa v. Sammons Communications, Inc., 795 F. Supp. 261, 262 (N.D. Ill. 1992). The court held that the decision in ACLU v. FCC, 262 U.S. App. D.C. 244, 823 F.2d 1554 (D.C. Cir. 1987), cert. denied, 485 U.S. 959 (1988) applied retroactively and that, accordingly, the FCC regulations under which Sammons of Illinois was deregulated were void ab initio. Sammons, 795 F. Supp. at 265.

 8. It is thus agreed by the parties that the primary issue in this case is the reasonableness of Sammons of Illinois's rate increases after January 1987. (Sch. (b) at PP 2 & 3).

 9. Pursuant to franchise agreements and ordinances, Sammons of Illinois provides cable services to subscribers who live in the municipalities. (Sch. (a) at P 3).

 10. Sammons Communications, which owns the stock of Sammons of Illinois, is not a party to the relevant franchise agreements and does not provide cable service in the municipalities. (PX 1 at 1; PX 3 at 1; 61 Television and Cable Factbook D-410, D-418, D-423 (Albert Warren ed. 1993); see Sch. (a) at P 3).

 11. Each franchise agreement or ordinance addresses Sammons of Illinois's authority to raise rates. (Sch. (a) at P 5).

 12. Each franchise agreement or ordinance also contains a separability clause providing that, if a provision of the franchise agreement is found to be inconsistent or at variance with any rule, regulation, or policy of the Federal Communications Commission ("FCC") or any other agency having jurisdiction, the remaining provisions of the agreement are still valid and binding upon the parties. (Sch. (a) at P 6).

 13. The franchise agreements were all entered into and the ordinances passed before December 29, 1984, the effective date of the Cable Act. (Sch. (a) at P 4).

 14. The Cable Act prohibited cable franchising authorities from regulating cable television service rates after December 29, 1986. 47 U.S.C. § 543(b), (c). Local regulation of cable service rates, however, was allowed in areas deemed "not subject to effective competition" as defined in regulations issued by the FCC. Id. at §§ 543(c), 557. Pursuant to the Cable Act, the FCC issued regulations which allow franchising authorities "to regulate rates for the provision of basic cable service in circumstances in which a cable system is not subject to effective competition." Id. at § 543(b)(1). (Sch. (a) at P 7).

 15. The Cable Act specifically provided that any provision of any franchise agreement that was inconsistent with the provisions of the Cable Act was preempted and superseded by federal law. Id. at § 556(c). (Sch. (a) at P 8).

 16. The Cable Act provided that any franchise agreement in effect on December 29, 1984 would remain in effect, subject to express provisions of the Cable Act, so that regardless of the effect of the Cable Act on rate provisions of a franchise agreement, each agreement was otherwise still valid and binding on the parties. 47 U.S.C. § 557. All the agreements in this case were in effect on December 29, 1984. (Sch. (a) at P 9).

 17. The Cable Act also provided that any request for an increase in regulated rates for which the franchising authority does not take action within 180 days shall be deemed granted. 47 U.S.C. § 543(d). (Sch. (1) at P 9).

 18. At all times relevant to this action, to the extent the municipalities were entitled to regulate Sammons of Illinois, 47 C.F.R. § 76.33 required the municipalities to solicit the views of interested parties, at least through written submissions, and issue a written statement regarding all decisions to regulate Sammons of Illinois. (Sch. (1) at P 10).

 19. To implement the Cable Act, the FCC amended its regulations in a report and order released April 19, 1985. Therein, the FCC listed each of the municipalities as being located within a franchise market with effective competition. Report and Order, 50 Fed. Reg. 18,637 (May 2, 1985); 47 C.F.R. §§ 76.33, 76.54 (1986). (Sch. (a) at P 10).

 20. Before January 1, 1987, Sammons of Illinois notified each of the municipalities and subscribers in the municipalities that it would raise its cable service rates as of that date. (Sch. (a) at PP 11, 19; Sch. (1) at P 14; Tr. at 255).

 21. The basic rate Sammons of Illinois charged in 1986 in the municipalities was $ 7.28 per month. After the Cable Act deregulated rates, Sammons of Illinois increased its basic cable rate to $ 9.50, effective January 1, 1987. (Sch. (a) at P 17).

 22. On July 17, 1987, the United States Circuit Court of Appeals for the District of Columbia Circuit issued an opinion reviewing FCC regulations implementing the Cable Act. ACLU, 262 U.S. App. D.C. 244, 823 F.2d 1554. In that opinion, the court upheld most of the FCC regulations, but found that the signal availability standard the FCC used to determine whether an area was subject to "effective competition" was "arbitrary and capricious." Id. at 1572-73. The court remanded "that issue to the agency for a reasoned explanation of its chosen standard or the development of a new standard." Id. at 1573. (Sch. (a) at P 13).

 23. On September 28, 1987, the FCC released its Further Notice of Proposed Rule Making to revise the "signal availability standard" which it used to define effective competition, and invited comments from the public. Further Notice of Proposed Rule Making, 52 Fed. Reg. 36,802 (Oct. 1, 1987). (Sch. (a) at P 14).

 24. In announcing both the revision process and rule changes unrelated to signal availability, the FCC stated that "apart from these immediate amendments, we note that our existing rules remain in effect, as the court's decision in ACLU did not reverse them." (Sch. (a) at P 15).

 25. On April 29, 1988, the FCC released its Second Report and Order amending the signal availability standard. Second Report and Order, 53 Fed. Reg. 17,049 (May 13, 1988). Under the new standard, the municipalities were not considered to be areas subject to "effective competition." The FCC's amended regulations became effective October 29, 1988. See id. (Sch. (a) at P 16).

 26. The FCC delayed full implementation of the new rules for six months to provide "a sufficient amount of time for a cable operator to adapt to the onset of regulation as a consequence of changes made herein." (Sch. (1) at P 8).

 27. In 1988, before the FCC's amended signal availability standard took effect, Sammons of Illinois raised its basic monthly rate to $ 11.00. (Sch. (a) at P 17).

 28. The Cable Act provided that, in addition to any other rate increase which was subject to municipal approval, any rate subject to regulation could be increased at the discretion of the cable operator by an amount not to exceed 5% per year. 47 U.S.C. § 543(e)(1). (Sch. (1) at P 17). 29. After October 30, 1988, Sammons of Illinois increased its basic cable rates by 5% or less, as permitted under the Cable Act. Sammons of Illinois's basic monthly cable rates were: Year Rate 1989 (starting November 1) $ 11.55 1990 (starting November 1) $ 12.10 1991 (starting May 1) $ 12.70 1992 $ 13.30

 At the time of trial, Sammons of Illinois's rate totaled $ 13.95. (Sch. (a) at P 18; PXs ...


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