Cable Modem Franchise Fee Dispute Stays in Federal Court in Chicago
In the first of a number of decisions expected on this issue, the U.S. District Court for the Northern District of Illinois denied a motion filed by the City of Chicago seeking to remand a cable modem franchise fee dispute to state court. The City of Chicago sued AT&T Broadband (now Comcast) and other Chicago-area cable operators in Cook County Circuit Court for breach of contract when they refused to collect or pay franchise fees on cable modem revenues. Comcast and the other operators removed the action to federal district court, arguing that the case raised issues under federal law. The district court agreed, finding that the franchise fee obligation was governed by the Cable Act, the FCC’s March 2002 Declaratory Ruling on cable modem fees, and other federal laws aimed at promoting the continued development of the Internet. As a result of the court’s decision, the cable operators’ dispute with the City of Chicago will be litigated exclusively in federal court.
Last March the FCC issued a Declaratory Ruling in which it determined that cable modem service was an “interstate information service” and not a cable service. See CRB Update dated March 14, 2002. Because federal law limits franchise fees to five percent of gross revenues derived from the provision of cable service, the FCC’s Declaratory Ruling meant that franchising authorities could not require payment of franchise fees on cable modem service revenues where the franchise already requires the payment of the maximum five percent of gross revenues on cable service.
The City of Chicago is not alone in its effort to use state courts as the forum for this aspect of the LFAs’ franchise fee disputes. A number of LFAs in other states have filed similar breach of contract actions in state courts in an effort to collect franchise fees on cable modem service. Many of these same LFAs are participating in the appeal of the FCC’s Declaratory Order currently pending in the Ninth Circuit (to be argued May 8, 2003) and the FCC’s ongoing rulemaking proceeding concerning the regulatory consequences of the “Information Service” classification, and thus appear to be seeking to establish multiple forums with the hope of obtaining a favorable outcome in at least one. This decision will help keep all of the LFAs’ efforts to collect franchise fees on cable modem service in the federal court system.
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