City of Springfield v. Comcast Cable Comms., No. 09-CV-30074-MAP.

670 F.Supp.2d 100

CITY OF SPRINGFIELD, MASSACHUSETTS, Plaintiff v. COMCAST CABLE COMMNICATIONS, INC., et al., Defendants.

No. 09-CV-30074-MAP.

United States District Court, D. Massachusetts.

November 17, 2009.

Edward M. Pikula, Harry P. Carroll, City of Springfield, Law Department, Springfield, MA, for Plaintiff.

Steven P. Perlmutter, Robinson & Cole LLP, Boston, MA, for Plaintiff/Defendants.

Adam S. Caldwell, Elizabeth A. Drogula, Davis, Wright, Tremaine LLP, Washington, DC, Gregory P. Varga, Robinson & Cole LLP, Hartford, CT, for Defendants.

MEMORANDUM AND ORDER RGARDING DEFENDANTS' MOTION TO DISMISS AND PLAITIFF'S MOTION TO REMAND TO STATE COURT (Dkt. Nos. 4 & 8)

PONSOR, District Judge.

I. INTRODUCTION

On March 31, 2009 Plaintiff, City of Springfield, filed a ten-count complaint in the Superior Court of the Commonwealth of Massachusetts, charging Defendants, Comcast Cable Communications, Inc. and Comcast of Massachusetts II, Inc., (collectively "Comcast" or "Defendants"), with failing to honor certain financial commitments. After some preliminaries, Defendants timely removed the case to this court on the basis of diversity jurisdiction.

Plaintiff has now moved to remand, arguing that Defendants' decision to intervene in a separate administrative proceeding binds it to litigate only in state court and that, in any event, Defendants waived their removal rights by filing certain motions in the Superior Court.

Defendants have moved to dismiss, on the grounds that Plaintiffs claims are preempted by federal law and, alternatively, that each count of the Complaint fails to state a claim under Rule 12(b)(6).

For the reasons stated below, Plaintiff's motion will be denied and Defendants' motion will be allowed, in part.

II. STATUTORY, PROCEDURAL AND FACTUAL BACKGROUND

This memorandum will begin by addressing the general statutory framework, then turn to the relevant contracts, continue with a description of the pertinent administrative proceedings, and conclude with the procedural history of this case.

A. Statutory Context

The Cable Act of 1992 grants the Federal Communications Commission ("FCC") the power, under certain circumstances, to regulate and determine reasonable rates for basic cable television services. See 47 U.S.C. § 543(b)(1). While establishing itself as the sole and exclusive source of regulatory authority, see 47 U.S.C. § 543(a)(1) ("[n]o Federal agency or State may regulate the rates for the provision of cable service except to the extent provided under this section ...."), the Cable Act commits the administration and enforcement of its regulations to local "franchising authorities." These authorities are governmental entities empowered by state or local law with authority in the area where the cable system operates. Id. Under this regime, a cable operator seeking an adjustment of cable rates must submit an application to its local "franchising authority", which in turn may approve or deny the adjustment in accordance with FCC regulations. 47 C.F.R. § 76.933.

In Massachusetts, the legislature has created an agency—the Cable Television Division of the Department of Telecommunications and Cable (hereinafter "DTC" or "Cable Division")—to act as the Commonwealth's "franchising authority" under the Cable Act. See Mass. Gen. Laws 166A, §§ 1 et seq.; 207 C.M.R. 6.02.¹ The DTC is vested with jurisdiction over initial decisions on basic cable service rate disputes. Mass. Gen. Laws c. 166A, § 15. Pursuant to federal law, cable companies operating in Massachusetts submit their rates to the DTC for review and approval. See, e.g., 47 C.F.R. §§ 76.922, 76.923; 207 C.M.R. 10.02 (requiring cable companies to make rate filings annually by March 15).

The Cable Act compels the FCC to promulgate regulations containing, inter alia, procedures by which franchising authorities may enforce regulations, including those by which disputes between cable operators and franchise authorities may be resolved. 47 U.S.C. § 543(b)(5). FCC regulation provides that the FCC is the "the sole forum" in which to appeal a franchising authority's ratemaking decision on the ground that the "franchising authority has acted [in]consistently with the Cable Act or [rules adopted thereunder]." 47 C.F.R. § 76.944 (emphasis added). Where, however, a ratemaking appeal "do[es] not depend upon determining whether a franchising authority has acted consistently with the Cable Act," it may be heard in state or local courts. Id. (emphasis added). These regulations, among others, have been adopted by the DTC pursuant to Massachusetts state law. See 207 C.M.R. 6.01; Mass. Gen. Laws ch. 166A, § 15.

The Cable Act also contains a preemption clause, which reads in relevant part: "... any provision of law of any State, political subdivision, or agency thereof, or franchising authority, or any provision of any franchise granted by such authority, which is inconsistent with this Act [47 U.S.C. §§ 151 et seq.] shall be deemed to be preempted and superseded." 47 U.S.C. § 556(c).

B. Contracts Underlying the Dispute

1. 1997 Settlement Agreement

In 1997, MediaOne,² the cable company serving the city of Springfield, apparently entered into certain negotiations relating to MediaOne's treatment of "Franchise Related Costs" ("FRCs").³ On November 6, 1997, these negotiations resulted in a Settlement Agreement, which contained provisions governing how the company could "pass-through" FRCs to customers. Dkt. No. 1, Ex. A, Compl. ¶ 7. This Agreement was submitted for review to the Cable Division⁴ which, pursuant to the Cable Act provisions outlined above, promulgated it as a statewide rate order with the force of law on November 13, 1997. ("Cable Division Order"). Plaintiff claims that it did not know of this public order and did not know of the negotiations leading to its adoption.

2. The Renewal License

On August 7, 1998, Plaintiff renewed MediaOne's operating license. Compl. at ¶ 9 ("Renewal License"). The license was to last for ten years starting January 29, 2000. Id. at ¶ 11. The Renewal License provided that MediaOne would pay 5% of its gross revenues annually to Plaintiff as so called "in-kind" benefits (as opposed to cash payments for the license). Id. at ¶ 19. Section 8.1(d) of the Renewal License contained a provision ostensibly prohibiting MediaOne from passing on the costs of these benefits to consumers. Dkt. No. 1, Ex. A-5, Renewal License at § 8.1(d).

3. The February Memorandum

The parties' understanding of these and other provisions was memorialized in a February 1998 memorandum summarizing some of the more significant aspects of the parties' bargain. See Dkt. No. 1, Ex. A-6 ("the February Memorandum"). The memorandum explicitly stated that "[n]otwithstanding any law or regulation to the contrary, the City and MediaOne would waive any rights under applicable law to pass on the cost of in-kind benefits to City cable television subscribers ...." Compl. at ¶ 21. Another key part of the parties' bargain mentioned in the February memorandum was MediaOne's promise to expend certain funds for local purposes, primarily $300,000 for a community telecommunications center and additional funds to build a high-speed data network.

In December 2002, MediaOne was purchased by Defendant Comcast Cable Communications, Inc. ("Comcast"). Comcast changed MediaOne's name to Comcast of Massachusetts II, Inc. ("Comcast II"), the co-Defendant in this action. Following the acquisition, Defendants made annual rate filings to the DTC by March 15 of each year as required by state and federal law. DTC, as noted, had the power to approve any changes to basic cable television rates.

C. 2007 Proceedings before the DTC

In November and December 2007, Comcast petitioned the DTC for approval of its basic service rates, including its treatment of Franchise Related Costs ("FRCs"). Plaintiff intervened in these proceedings, arguing that Section 8.1(d) of the Renewal License prohibited Defendant from recovering any FRCs from customers.

Defendants countered that recovery of the FRCs did not constitute a "pass through" for purposes of Section 8.1(d) of the Renewal License because the 1997 Settlement Agreement, adopted as a public order by the state Cable Division, provided that as of January 2000 (the effective date of the Renewal License) any FRCs that had been historically passed through to subscribers would be deemed "embedded" in its basic service rates. Dkt. No. 5, Defs.' Mot. to Dismiss at 4. Thus, according to Defendants, a "pass through" would occur only if Defendants billed customers for any incremental increase in the FRCs. Defendants provided examples of this arrangement in the Settlement Agreement to the DTC. For instance, MediaOne's original license required it to provide $100,000 for local programming while the Renewal License required $150,000. Defendants argued that they were only prohibited from passing through the incremental $50,000 difference to customers.

After intervention before the DTC, Plaintiff Springfield contended that the Settlement Agreement did not govern the Renewal License and that the latter intended the term "pass through" in Section 8.1(d) of the latter agreement to apply to any FRCs billed to customers.

The DTC ultimately ruled for Defendants on two grounds. First, it agreed with Defendants' construction of the term "pass through" as covering only incremental increases in FRCs, finding that the Settlement Agreement governed the Renewal License, and defined "pass through" for the purposes of Section 8.1(d). It construed the Settlement Agreement and the Renewal License together and gave conclusive weight to § 9.12(a) of the Renewal License, which explicitly incorporated therein all "rules and regulations of the FCC and the Cable Division." See Compl. Ex. A-6 ("DTC Order") at 18. Since it was adopted as a public order by the Cable Division, the DTC determined that the Settlement Agreement was one of the "rules and regulations" of the ...