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ERIE TELCOMS., INC. v. CITY OF ERIE

April 15, 1987

Erie Telecommunications, Inc., a Pennsylvania Corporation, Plaintiff
v.
City of Erie, a Pennsylvania Municipal Corporation, Defendant



The opinion of the court was delivered by: MENCER

 This suit involves a challenge to the validity of a cable franchise agreement entered into between plaintiff Erie Telecommunications, Inc. ("ETI") and defendant City of Erie. ETI attacks certain provisions of the agreement as being violative of the first and fourteenth amendments of the U.S. Constitution and seeks redress for these alleged constitutional infringements through the application of 42 U.S.C. § 1983. *fn1" Additionally, ETI maintains that the agreement contains certain fee provisions which contravene federal statutory authority. Based upon this position, ETI has ceased making payments due to the City of Erie under the franchise agreement. Conversely, the City, assured of the propriety of the agreement, presents a counterclaim seeking damages for ETI's breach of contract. Instantly, before this Court, are the City's motion for partial summary judgment with respect to all counts of ETI's complaint and ETI's own cross-motion for summary judgment. *fn2"

 After review of this record, the Court concludes that as a matter of law, the instant undisputed facts warrant a grant of partial summary judgment in favor of defendant City of Erie.

 I. Factual Background

 In May 1980, in an effort to generate revenue, the City of Erie issued a Request For Proposals for the award of a cable television franchise. The proposal outlined the terms that would be requested of potential cable operators. The ordinance provided that the grantee pay the City an annual franchise fee equal to five percent of the operator's gross annual receipts, with a minimum payment of $ 100,000 per year. It also stated that the cable operator would be expected to purchase municipal bonds issued by the City, in the amount of $ 1 million as a security fund and another $ 1 million construction bond, and to pay the City $ 100,000 to cover franchising process expenses. Further, the ordinance noted that a "Side Agreement" would mandate that the grantee provide and support local "access" programming. *fn3" Support for the programming included access fees of $ 120,000 upon the award of the franchise, $ 240,000 thereafter in monthly installments of $ 10,000, followed by monthly payments based upon a percentage of gross receipts.

 In August 1980, public hearings were held at which each of six applicants offered proposals for the awarding of the franchise. Plaintiff ETI, whose principal shareholder American Television and Communications Corporation is the nation's second largest cable system operator, was one of those applicants. On October 22, 1980, after negotiations had fallen through with another applicant, Erie Comcast Cablevision, Erie City Council voted to negotiate simultaneously with ETI and Teleprompter of Erie, Inc. On October 29, 1980, council decided that ETI would be awarded the city's cable television franchise. *fn4" The City of Erie and ETI executed a cable franchise agreement on November 11, 1980 for an initial term ending December 31, 1990. *fn5"

 The final negotiated franchise agreement details various prepayments and future fees. Section 29(A) of the agreement provides:

 
As compensation for permission to use the streets and public ways of the City for the construction, operation, maintenance, modification, and reconstruction of a Cable System, and for the City's costs in establishing a regulatory program for Grantee (ETI), the Grantee shall pay to the City an annual amount equal to five percent (5%) of the Grantee's Gross Annual Receipts, until disapproved by the FCC. *fn6"

 The agreement provides for the satisfaction of this 5% assessment through two distinct means. Under § 29(D)(1), prepayment of those fees required under § 29(A) was due in the amount of $ 2,700,000. Further, under § 29(D)(2), a minimum of $ 100,000 per year or the 5% assessment, whichever was greater, is due for each year the agreement covers. However, no payment greater than $ 100,000 was due until all prepaid franchise fees had been recovered by ETI. Moreover, a $ 150,000 fee was imposed for direct and indirect expenses incurred by the City in the franchising process and an additional $ 150,000 fee became due as compensation for the City's aid in securing space for ETI's cables on existing utility poles.

 The franchise and side agreements also specify certain access requirements. Under the franchise agreement, "in-kind" requirements of dedicated channel capacity and television production equipment and training are imposed on ETI. The side agreement outlines the fee structure for the maintenance of access channels. Essentially, the agreement demands of ETI a prepayment of $ 30,000, followed by payments of $ 90,000 during the remainder of the first year of the franchise term, $ 10,000 per month for years one through three, and $ 25,000 per year until expiration of the franchise agreement. Additionally, subject to certain exceptions and after recovery of the prepaid franchise fees, the side agreement requires ETI to pay 1% of its gross receipts for access programming use.

 Aside from the ETI's various prepayments, ETI maintains that from November 1980 until the initiation of the instant suit, $ 540,000 in franchise and access support payments have been made. Since April 1985, ETI has refused to honor the fee provisions of the franchise agreement.

 II. AFFIRMATIVE DEFENSES

 Initially, before addressing the merits of ETI's claims, the Court must determine the validity of the City's three affirmative defenses. First, by virtue of its conduct in securing the cable franchise, the City argues that ETI has waived or must be estopped from challenging the legality and enforceability of the franchise agreement. Second, the City maintains that the legal position taken by ETI in the case of Teleprompter of Erie, Inc. v. City of Erie, an action challenging the propriety of the franchise bidding procedure, should bar ETI from asserting that the franchise agreement is invalid or unenforceable. Finally, the City asserts that ETI's claims for damages under 42 U.S.C. § 1983 are barred by the applicable statute of limitation. These contentions will be addressed seriatim.

 1. ETI's Constitutional Claims

 In support of its motion for partial summary judgment, the City advances an argument based on quasi-estoppel. According to the City, ETI not only proposed the contractual terms that it is presently challenging, but also received substantial benefit from the franchise agreement. Maintaining that it has relied to its detriment on ETI's conduct, the City argues that to permit ETI to benefit from its recent change in position would be unconscionable.

 ETI does not directly address the City's estoppel argument, but instead responds to the City's motion by asserting that it has not waived its right to challenge the constitutionality of the fee agreement. ETI contends that the condition precedent to waiver of a constitutional right -- voluntary relinquishment of a known right -- has not been satisfied. Additionally, ETI suggests that strong public policy considerations preclude the application of the doctrine of waiver. *fn7" The Court concludes that ETI's entering into the franchise agreement neither constitutes a waiver of nor a ground for estopping the assertion of the instant constitutional claims.

 a. Waiver

 The seminal case in the area of waiver of first amendment rights is Curtis Publishing Company v. Butts, 388 U.S. 130, 87 S. Ct. 1975, 18 L. Ed. 2d 1094 (1967). In that case the United States Supreme Court focused on the defendant publishing company's knowledge of available constitutional defenses. Finding that the specific issue in the case had not been clearly resolved prior to New York Times Co. v. Sullivan, 376 U.S. 254, 84 S. Ct. 710, 11 L. Ed. 2d 686 (1964), the Court refused to conclude that Curtis had knowledge of its constitutional rights. In rejecting the waiver argument the Court held that

 
the constitutional protection which Butts contends that Curtis has waived safeguards a freedom which is the 'matrix, the indispensable condition, of nearly every other form of freedom . . . .' Where the ultimate effect of sustaining a claim of waiver might be an imposition on that valued freedom, we are unwilling to find waiver in circumstances which fall short of being clear and compelling.

 Curtis, 388 U.S. at 145, 87 S. Ct. 1975, 18 L. Ed. 2d at 1105, citing Palko v. Connecticut, 302 U.S. 319, 327, 58 S. Ct. 149, 82 L. Ed. 288, 293 (1937).

 The standard set forth by the Supreme Court in Curtis offers broad protection against the waiver of first amendment rights. Plainly, the granting of a waiver defense hinges on a party's knowledge of the existence of first amendment rights. The Court's holding clearly rejected the fifth circuit's admonition that a party should be charged with reading "the handwriting on the wall." Curtis, 388 U.S. at 143-44, 87 S. Ct. 1975, 18 L. Ed. 2d at 1104.

 Thus, in reviewing the waiver issue this Court must consider whether, in 1980, the law would have recognized a cable company's first amendment challenge to an assertion of excessive franchise fees. In evaluating this issue, the Court is cognizant of the expansion of rights the cable companies experienced in the late 1970s. See, e.g., FCC v. Midwest Video Corp., 440 U.S. 689, 99 S. Ct. 1435, 59 L. Ed. 2d 692 (1979) (Midwest Video II). *fn8" It is unclear, however, what affect that expansion had on cable operators' first amendment rights in general and the franchise fee issue in particular. *fn9" Therefore, in light of the ambiguity and uncertainty in 1980, surrounding the first amendment rights of cable companies, this Court cannot conclude that ETI waived its first amendment right to challenge the franchise fee arrangement.

 The City does not directly challenge this conclusion. In fact, the City acknowledges that "the cable television industry's First Amendment challenge to the concept of franchising itself has only surfaced in the past two years. At best, then, many of the constitutional issues raised by ETI are ones of first impression." Notwithstanding the lack of waiver, however, the City asserts that ETI should be estopped from challenging the constitutionality of the fee agreement. In this regard, the City directs the Court to the doctrine of quasi-estoppel.

 b. Quasi-Estoppel

 The doctrine of quasi-estoppel operates to bar a party from asserting, to another's disadvantage, a right inconsistent with a position previously taken by that party. The doctrine, which is based on fundamental principles of equity, if applied here, would preclude ETI from challenging the constitutionality of the fee agreement once ETI received substantial benefits from the franchise. In common parlance, this doctrine translates into "one cannot blow both hot and cold." KTVB, Inc. v. Boise City, 94 Idaho 279, 486 P.2d 992, 994 (1971) quoting Godoy v. Hawaii, 44 Hawaii 312, 354 P.2d 78, 82-83 (1960).

 The Court in KTVB addressed the requisite elements of the defense of estoppel, as well as the rationale underlying its application. The issue in that case was whether certain cable companies should be estopped from challenging the award of a franchise by the city to another company. The trial court found that the plaintiff-cable companies' "having participated in and acquiesced in the procedures leading to the award of the franchise were thereby estopped from challenging that award." KTVB, 486 P.2d at 993. The state Supreme Court agreed.

 In discussing the doctrine of quasi-estoppel, the Idaho Supreme Court noted that unlike the other types of estoppel, quasi-estoppel is not contingent on a finding of "concealment or misrepresentation of existing facts on the one side, . . . [or] ignorance or reliance on the other." Id. The court went on to hold that:

 
the doctrine classified as quasi-estoppel has its basis in election, ratification, affirmance, acquiescence, or acceptance of benefits; and the principle precludes a party from asserting, to another's disadvantage, a right inconsistent with a position previously taken by him. The doctrine applies where it would be unconscionable to allow a person to maintain a position inconsistent with one in which he acquiesced, or of which he accepted a benefit.

 KTVB, 486 P.2d at 994. See also United States v. Lamont, 155 U.S. 303, 309, 15 S. Ct. 97, 39 L. Ed. 160, 164 (1894); Young v. Amoco Production Co., 610 F. Supp. 1479 (E.D. Tex. 1985); In re Estate of Brojack, 321 Pa. Super. 154, 467 A.2d 1175 (1983).

 Relying on the above cited case law, the City argues that ETI should be estopped in its present challenge to the constitutionality of the franchise fee. According to the City, ETI not only suggested the prepayment provision and assented to the 5% fee arrangement, but it has also reaped valuable and substantial benefits from the contract. ETI's position that the fee provision is violative of the cable company's first amendment rights is, argues the City, inequitable, unethical and unconscionable.

 The City's position is not without record support. As is clear from the evidence, ETI was an active and aggressive participant in the 1980 bidding process. ETI's first franchise proposal provided for the prepayment of franchise fees in the amount of $ 675,000. *fn10" ETI's final proposal, which was ultimately accepted by the City, provided for the prepayment of $ 2,700,000 in fees. *fn11" ETI's willingness to quadruple the ante indicates that it viewed the franchise as a valuable asset. ETI also received significant value by being the first cable operator in the City of Erie. The effect of this natural monopoly phenomenon has been recognized by the courts *fn12" and is borne out by the facts in this case. When the City opened bidding for the cable franchise in 1980, six cable companies demonstrated a serious commitment to be considered. Three years later, after ETI had firmly established itself in Erie, not even one cable company would nibble on the City's franchise bait.

 Although the City's quasi-estoppel argument has emotional appeal, the case law does not support the application of that doctrine to the facts of this case. As the Court in KTVB noted, "knowledge of existing rights" is essential in estoppel cases. KTVB, 486 P.2d at 995. Accordingly, "the requirements for proper application of quasi-estoppel are, then, that the person against whom it is sought to be applied has previously taken an inconsistent position, with knowledge of the facts and his rights, to the detriment of the person seeking application of the doctrine." Id. (Emphasis added.)

 Given the finding that ETI has not waived its constitutional rights because it lacked knowledge of its rights, this Court must also conclude that ETI is not estopped from asserting those rights. Notwithstanding ETI's active participation in the bidding process, and notwithstanding the benefits it derived from the franchise, this Court cannot conclude, as a matter of law, that ETI had "knowledge of its first amendment rights." Therefore, neither the doctrine of waiver nor the doctrine of estoppel preclude ETI from proceeding with its challenge to the constitutionality of the fee provision.

 2. ETI's Statutory Claims

 The City also asserts that ETI Should be estopped from bringing a statutory attack against the fee provisions of the franchise agreement. Here, the Court concludes that, unlike ETI's constitutional challenges, the statutory claims involve a circumstance where a known right has been voluntarily relinquished. Therefore, by virtue of ETI's acceptance of the franchise fee terms of the 1980 agreement, ETI is estopped from maintaining a statutory attack for alleged violations which occurred under the law both prior to and subsequent to enactment of the Cable Communications Act of 1984. *fn13"

 The Court reiterates that the doctrine of quasi-estoppel demands a showing that the position currently maintained by a party is inconsistent with a position previously taken by that party. Clearly, by entering into the 1980 franchise and access agreements, ETI took the stance that it considered the agreement to be valid. Although § 19(A) of the franchise agreement compels ETI to comply at all times with state and federal laws and regulations, it can only be a fiction to suggest that ETI was unaware of the franchise fee ceiling set forth in 47 C.F.R. § 76.31. *fn14" This record convincingly demonstrates that ETI and its representatives were knowledgeable participants in cable franchise negotiations in the City of Erie and throughout the country. Accordingly, at the time the instant agreement was negotiated and ultimately entered into, ETI was cognizant of or, at least, was chargeable for having knowledge of the statutory limitations imposed on franchise fee requirements. The Court finds that by accepting the terms of the franchise agreement and its resultant benefits, ETI maintained the position that the fee arrangement was valid and enforceable.

 ETI's current position is plainly inconsistent with the stance it assumed in 1980. Despite having previously acquiesced to the payment provisions of the agreement, ETI now asserts that the fees charged are unlawfully excessive. Under principles of quasi-estoppel, ETI must be estopped from claiming that the fees imposed under the agreement are violative of any federal statute.

 In its response to this affirmative defense, ETI suggests that it was under duress to extend a franchise offer in excess of what was statutorily authorized. The argument is that in order to be awarded the franchise, ETI was compelled to submit to the City's demands. ETI contends that no alternative course existed, as failing to yield to the City's franchise terms would result in foregoing a privilege which is vital to ETI's livelihood -- the authority to use the public rights-of-way. The Court is not persuaded by these "cries of wolf."

 As recognized by the FCC, "the process of soliciting bids for cable television franchises often leads to excesses in both demands and offers." Clarification of the Cable Television Rules, 46 F.C.C. 2d 175, 191 (1974). Here, without condoning the conduct of either the City of Erie or ETI in the solicitation process, this Court refuses to allow ETI to attack these "excesses." Even assuming that but for an offer exceeding statutory limits, ETI would not have been granted the cable franchise, the undisputed fact is that ETI was aware of its statutory rights in 1980. Further, ETI admits that it did not seek enforcement of those rights until 1983 or 1984, when ETI informed the City of its alleged violations. By having failed to seek relief from either the FCC or the courts during the solicitation process or from the City for three years thereafter, ETI certainly took no action to indicate displeasure with this allegedly duressful agreement. See Levin v. Garfinkle, 492 F. Supp. 781, 807 (E.D. Pa. 1980) (Proof of duress requires a showing that "(1) serious economic injury was imminent, (2) exerting such pressure that the party involuntarily executed an agreement leading to economic loss, and (3) there was no immediate legal remedy available as an alternative to executing the agreement") (Citation omitted).

 In 1980, ETI was in a position to "blow the whistle" on any abuses stemming from the solicitation process. The Court can only assume that ETI chose not to challenge the propriety of the City's demands because ETI was able to outbid its competitors. As winner of the franchise, ETI had no incentive to attack the agreement or the means by which the agreement was gained. Now, facing terms which it considers unfavorable, ETI seeks redress. This hardly suggests a valid claim that duress played a part in ETI's ratification of the franchise agreement. See Harrison v. Fred S. James, P.A., Inc., 558 F. Supp. 438, 443 (E.D. Pa. 1983) ("merely because one enters into an agreement which he would not enter if his financial circumstances were more secure, does not mean that a claim for duress exists as will void the contract") (citation omitted). ETI attempts only to "blow both hot and cold."

 Accordingly, as a matter of law, the Court concludes that ETI is estopped from asserting its claim that the franchise agreement ...


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