City of Los Angeles v. Preferred Communications, Inc.

PETITIONER:City of Los Angeles
RESPONDENT:Preferred Communications, Inc.
LOCATION:March Air Force Base

DOCKET NO.: 85-390
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 476 US 488 (1986)
ARGUED: Apr 29, 1986
DECIDED: Jun 02, 1986

ADVOCATES:
Edward J. Perez – on behalf of the Petitioner
Harold R. Farrow – on behalf of the Respondent

Facts of the case

Question

Audio Transcription for Oral Argument – April 29, 1986 in City of Los Angeles v. Preferred Communications, Inc.

Warren E. Burger:

The Court will hear arguments first this morning in City of Los Angeles against Preferred Communications, Incorporated.

Mr. Perez, you may proceed whenever you are ready.

Edward J. Perez:

Thank you, Mr. Chief Justice, and may it please the Court:

This case is before you today as a result of a decision by the Ninth Circuit Court of Appeals.

In that decision the Ninth Circuit held that the City of Los Angeles may not limit access to its public utility poles, public utility ducts, by way of an option process, if space permits further construction.

Before I commence argument, Your Honors, I would like to state the key points of my argument and then briefly summarize the facts.

This case is really only about digging up streets and hanging coaxial cable on utility poles.

Point number two, our process is not unique.

It has evolved over two decades’ worth of experience, in approximately 7,000 other situations in this country.

The proper First Amendment analysis is the third point.

We believe it is under the public forum doctrine.

The public forum doctrine says that in a non-public forum mode, nondiscriminatory regulations need only be reasonable.

Very briefly, Your Honors, the key facts of this case are, the City, pursuant to California state law, requires a cable operator to obtain a franchise.

The City awards these franchises through a competitive bid process, and we select only one franchisee.

In October of 1982, the City of Los Angeles opened up the South Central area for a competitive bid process.

Preferred Communications, the respondent in this case, did not participate in that competitive bid process.

Instead, Preferred Communications informally requested that the City grant them a franchise.

The City denied that informal request, and Preferred Communications filed a lawsuit in the district court in Los Angeles.

They alleged antitrust violations, and they also alleged First Amendment claims.

The City of Los Angeles filed a Motion to Dismiss pursuant to Federal Rules of Civil Procedure 12-B-6.

We allege they failed to state sufficient facts to constitute a claim upon which relief may be granted.

The district court dismissed… granted on motions the district court found there is no constitutional right to construct the cable television system on government property without government permission.

Preferred Communications appealed to the Ninth Circuit.

The Ninth Circuit sustained the motion with regard to the antitrust claims, but reversed on First Amendment grounds.

We then appealed to this Court, and this Court denied our appeal but granted certiorari.

The first point, Your Honors, is that we really are dealing with the construction of a cable system.

The respondent has raised many issues which may be important and may sometime have to be decided by this Court, but today the only issue is, do they have a constitutional right to construct the system on government property.

This is not a case–

Byron R. White:

How does that… how was it anticipated that the franchisee in this area would have constructed the system?

Has it been constructed?

Edward J. Perez:

–Your Honor, that is not in the record.

If you would like an answer–

Byron R. White:

Was it going to be on poles, or underground, or both?

Edward J. Perez:

–A combination, Your Honor.

What was envisioned was approximately 770 miles of aerial cable and approximately 25 miles of city streets in South Central Los Angeles.

Byron R. White:

And who owns the poles?

Edward J. Perez:

It’s a combination, Your Honor.

The telephone company owns some, but the majority, the Department of Water and Power.

Byron R. White:

So, a good share of the system will occupy public property?

Edward J. Perez:

The majority of the system will be on public property, Your Honor, and if it’s not, the fact that it’s on city rights of ways, we control the rights of ways so I don’t think the fact that a private pole involved really is important in this case.

So, this is not a case, Your Honors, where you have to consider cable with newspapers, that’s not really an issue here.

What’s at issue is constructing a system for South Central.

This is not a case where the Court needs to decide the First Amendment rights of cable.

We concede that they have First Amendment rights, so that’s not really at issue in this case.

This case really isn’t, when you stop and look at the situation, a case where you need to decide content regulation.

The Ninth Circuit looked at our RFP and our process, and they found that it was not unconstitutional on its face.

So, the issue would be, if any, was it applied discriminatorily.

Well, it was virtually impossible to do that because Preferred did not participate in our system.

So, how could we discriminate against your viewpoint?

Byron R. White:

But you don’t… you are only going to award one license in each area?

Edward J. Perez:

That’s correct, Your Honor.

Byron R. White:

And you’re going to tell us pretty soon why that’s reasonable?

Edward J. Perez:

I will tell you in my reasonable arguments exactly why we do what we do, and that it is reasonable.

Warren E. Burger:

Is that a permanent and final decision, or could you later award similar rights in other areas?

Edward J. Perez:

Our franchise process envisions… it is not exclusive.

However, we would probably not award another application unless it was justified, but that avenue is open.

We have a non-exclusive franchise, and our bid process says, if you look at 58-200, it says that in each process you must select the highest responsible bidder.

So, in the process you select one, but you can have a subsequent process, and it’s up to the applicant who initiates the subsequent process to say yes, the City of Los Angeles, one cable company’s not doing it.

Give us a chance to do it also.

We would then evaluate that second process and make a decision.

Sandra Day O’Connor:

Mr. Perez, doesn’t this case come to us as a result of a 12-B-6 motion?

Edward J. Perez:

Yes, Your Honor.

Sandra Day O’Connor:

And don’t we have to take the allegations in the complaint as true for purposes of our inquiry?

Edward J. Perez:

Well, I don’t think, Justice O’Connor, that you have to take all the allegations in the complaint as true.

There are some… in our view, conclusions in there that this Court does not have to accept.

But even if you did, if you look at the complaint and then you look at the other information that’s before this Court, this Court certainly has the right to look at the RFP, our franchise procedure ordinances, the wealth of literature that we refer to in our brief, and make a decision.

There’s nothing in the complaint that limits the action it took.

Sandra Day O’Connor:

Well, my concern is that apparently you concede that there are some First Amendment values at stake here, and that there has to be some weighing process which goes on, and faced with the allegations and the complaint that are made, I wonder how that can be done properly in a 12-B-6 motion, frankly.

Edward J. Perez:

If you were to accept just the allegations in the complaint, Your Honor, I think you would see that at least in our view he did not sufficiently allege content regulation.

I mean, that’s the dispute, you know–

Sandra Day O’Connor:

Well, the complaint alleges that the City will award the franchise only to the single company it deems best?

Edward J. Perez:

–That’s correct.

Sandra Day O’Connor:

Which would appear on its face to be some sort of a content based determination.

Edward J. Perez:

Well, if there is any content considerations incidental to the process, Your Honor, and I would suggest that as this Court held in the Rentgen case, if you look at the predominant intent of the document or the process and really see what the City was trying to do, and in the reasonableness argument I will show you what we were trying to do here, and there’s really no allegation–

Sandra Day O’Connor:

But, isn’t that the kind of thing that you go to trial on and let the City prove its interests, and whether those interests are sufficient to overcome the First Amendment interests of the company.

Edward J. Perez:

–The short answer to that, Your Honor, is in this case you don’t need to.

You can look at the RFP.

If this Court wants to take consideration of that, and there’s facts in there that this Court can use, utilize to make a determination without a trial.

William H. Rehnquist:

Mr. Perez, what exactly is the standard by which the City would award the franchise?

Is it the lowest responsible bidder, as you said, or the best?

How is it?

Edward J. Perez:

It’s the highest responsible bidder, Your Honor.

And, Justice Rehnquist, what happens is that the overall applicant and all the applicants, we weigh very many, many, many things, not just one thing.

You look at the financial responsibility of the applicant, can that applicant build the system, and will that applicant keep it going.

Will that applicant… does that applicant have a technical expertise within which to maintain the system?

Will it provide a state of the art system to best serve the interests of the public?

William H. Rehnquist:

Well, is there some room for content and regulation in there, or determination on the basis of content?

Edward J. Perez:

There are certain areas where I think arguably, someone could allege, as the Ninth Circuit held, the impermissible risk of covert discrimination.

We ask for broad categories of programming to see… or to justify the substantial terminal interest that we believe is present, and that’s information diversity.

Congress studied that in Cable Act, a very lengthy discussion of that, and found that that was a governmental interest that we should be concerned about.

Sandra Day O’Connor:

Well, Mr. Perez, the complaint, though, alleges that it is entirely feasible to string another cable on the poles, and that according to the allegations of the complaint it would not be a burden to city-owned property to enable another cable to be strung, and serve the same areas of the City that the City wants served.

Now, faced with those allegations, how should we on a 12-B-6 motion determine that the City has a sufficient interest to prevail over that?

Edward J. Perez:

Well, Your Honor, let me get to the reasonableness portion of my argument, and I think I’ll address that for you, and I appreciate your concerns and I appreciate the fact that this is a 12-B-6 and you want to look at the face of that document and make a determination.

But, we would urge you, that number one, you don’t have to do that; and number two, the substantial governmental interests that are present outweigh that.

You can balance that, and that’s what we’re talking about here, a balancing process in a reasonable proportion.

Let me discuss that with you.

We believe we are in a non-public forum category, and in a non-public forum category, absent content regulation which we maintain we have here, we have a reasonableness test as this Court has enunciated in Cornelius, Perry and Greenberg.

Now, we believe our process is eminently reasonable for the following reasons, Your Honor.

It is well thought out.

Over two decades worth of experience, began back in the 1960’s when the FCC first saw how cable was starting to grow and they couldn’t deal with cable.

They had to make a decision and they decided, Your Honor, that local communities know what’s best for local communities.

They said, local communities, come up with the franchise process.

And all across this country, in approximately 7,000 situations they came up with one franchisee only, very, very similar to what we do in Los Angeles.

The State of California looked at that when they passed Government Code Section 53066.

They thought it through.

They came down to the same conclusion.

Congress, when they went in its deliberations, years of study, years of compromise, years of negotiation which included the cable industry, as well as cities, as well as public participants, everybody got together.

They came out with this result.

Now, you can use all the deliberations and all reports, Your Honors, to look at this issue.

If you want to stick to the four corners of the complaint there might be a problem, and I appreciate, Justice O’Connor, your concern.

But you are not limited to that.

This Court has a right to consider the [inaudible] that we would proffer, the RFP, the legislative history in the Cable Act, the legislative history that California went through when they–

William H. Rehnquist:

Well, how does that legislative history, Mr. Perez, bear on the constitutional issue?

Edward J. Perez:

–Well, what it does, Your Honor, is give you some facts to dispute what might be in the complaint that’s troubling Justice O’Connor.

That’s what it does.

And it shows the reasonableness.

Now, what we have to decide here is what’s going to happen to cable in our country.

This case is very important, and if we have to go back to trial to prove some of these issues, which we really don’t have to because there is ample wealth of information before you, then you’re going to have lawsuits all across this country like you’re having right now.

This case shouldn’t be here before you.

Warren E. Burger:

Well, are you arguing for an

Warren E. Burger:

“approach it one step at a time. “

until the whole future, or at least more of the future of cable television has unfolded?

Edward J. Perez:

Well, clearly, Mr. Chief Justice, because even though we’ve had two decades worth of experience, it’s still changing rapidly and we know that there will be greater changes in a couple of years.

We need to work slowly on that, and we in the City of Los Angeles and other cities in this country need to make certain legislative assumptions.

We don’t always know what’s going to happen in the future.

Social issues and economic issues are not easily proved by facts, and this Court has acknowledged the fact that local communities can make legislative judgments.

We ask you to do that, and I think that might, Justice O’Connor, get you over your concerns about the base of that complaint.

Lewis F. Powell, Jr.:

Mr. Perez, it will be helpful to me if I understand the status of legislation.

Does the California statute authorize a city to limit licensees to a single cable TV company?

Edward J. Perez:

What Government Code Section 5306-C does–

Lewis F. Powell, Jr.:

Expressing–

Edward J. Perez:

–It says that local governments can grant franchises.

It does not say, necessarily, restrict it to one.

Lewis F. Powell, Jr.:

–It does not express and limit you to one?

Edward J. Perez:

That’s right.

Lewis F. Powell, Jr.:

Does any city in the State of California have a policy different from that of Los Angeles with respect to multiple or dual licensees?

Edward J. Perez:

If they do I’m unaware of it, Your Honor.

Lewis F. Powell, Jr.:

Unaware of it?

Edward J. Perez:

Yes.

Lewis F. Powell, Jr.:

Is there anything in the federal legislation that would restrict you, assuming the validity of that legislation, to licensing only one cable television company?

Edward J. Perez:

Well, Section 621 of the Cable Act says that it’s up to the discretion of local governments to make a decision to grant one or more.

They give us the option.

Lewis F. Powell, Jr.:

So, you do have the right under the legislation to grant more?

Edward J. Perez:

As we see it, Your Honor, yes, we do.

Byron R. White:

But you also have the privilege to grant only one under the federal statute?

Edward J. Perez:

Pardon me, Your Honor?

Byron R. White:

You also have the privilege of granting only one under the federal statute?

Edward J. Perez:

That’s correct.

John Paul Stevens:

Does the record tell us how many Los Angeles has granted?

Edward J. Perez:

How many franchises currently, I don’t believe so.

Edward J. Perez:

If the record reflects that there are other franchise areas, it was a scheme to break up Los Angeles into certain geographical areas.

I don’t think it gives the exact number, but I can furnish that if you would like.

John Paul Stevens:

Is it a matter of public record?

Edward J. Perez:

It is a matter of public record, Your Honor.

John Paul Stevens:

Can you tell us what it is?

Edward J. Perez:

It’s 14 franchise areas in the City of Los Angeles.

John Paul Stevens:

So, it’s conceivable you might be dealing with working different franchisees?

Edward J. Perez:

We could have 14 lawsuits also, Your Honor.

That’s correct.

John Paul Stevens:

Well, I mean whether you get lawsuits or not, you could have… each one, they’re all allocated separately?

Edward J. Perez:

Yes, Your Honor.

I see Your point now.

Excuse me.

You could have competition, or challengers like Preferred who could come in and wire 14 areas.

John Paul Stevens:

Well, I mean, forgetting competition, if you have 14… 14 separate licensees simultaneously in different areas of the City?

Edward J. Perez:

That’s correct.

John Paul Stevens:

And you’d only have problems if one wanted to expand into his neighbor’s area or something?

Edward J. Perez:

That’s correct, Your Honor.

William J. Brennan, Jr.:

And do you actually have 14 licensed–

Edward J. Perez:

We have 14 granted now, Your Honor.

William J. Brennan, Jr.:

–Granted now?

Edward J. Perez:

Not all are completed.

Construction is not completed on all of them.

I would like to talk a little bit more about the reasonableness of our process.

There are substantial governmental interests that underpin our franchise process and which we feel justifies what we are doing in Los Angeles.

There is disruption of the streets and disruption of the back yards and neighborhoods in the City of Los Angeles.

When you have a cable company coming in to construct a system or dig up the streets, it causes traffic jams, noise, debris.

They go into back yards, residential homes, and they scamper up poles and construct–

Lewis F. Powell, Jr.:

Mr. Perez.

Edward J. Perez:

–Yes, Your Honor.

Lewis F. Powell, Jr.:

Excuse me for interrupting you again.

But what concerns me is the point that Justice O’Connor had mentioned, and the case comes to us on a 10-B-6 motion.

Can we consider what you are now arguing?

Edward J. Perez:

Well, Your Honor, I–

Lewis F. Powell, Jr.:

Nothing in the record to support it, is there?

Edward J. Perez:

–Well, if the Court does not take into consideration the references of the material that we have in our brief and the other briefs before this Court, there might be some problem with that.

Lewis F. Powell, Jr.:

In other words, you may very well have a substantial City interest, but do we have the facts before us in order to decide that question?

Edward J. Perez:

Only if you consider the information that we have referenced in our brief, Your Honor.

If you look only at the four corners of the complaint, you probably would not find it.

Lewis F. Powell, Jr.:

Would that indicate a remand?

Edward J. Perez:

No, that would not indicate a remand, Your Honor.

We urge you strongly to consider our RFP, the studies of the FCC, and there’s plenty of information there, the experiences of the 7,000 other systems in this country.

And, our system didn’t come out of someone’s mind all of a sudden.

There’s constant deliberation between the City of Los Angeles and other cities all the time, and we should be able to utilize the experiences of other cities.

Byron R. White:

Is there anything in the record with respect to whether economics was a factor in deciding to have only one franchisee per area?

Edward J. Perez:

Economics in which sense, Your Honor?

We ask for financial information to make sure that they’ll construct the system.

Byron R. White:

Well, no, whether the market would support more than one cable system in an area.

Edward J. Perez:

Well, that is not in the complaint.

That is not in the RFP.

But that is again, Your Honors, in all of the literature which this Court may consider if it wishes, to look at the economic theories, the fact that cable… it costs so much just to start a cable system, the economies of scales would weed out any competition.

Byron R. White:

Well, that may be so.

Well, if that’s the case it wouldn’t hurt you to… no one would… a second company wouldn’t even want in?

Edward J. Perez:

Well, a second company might want in for two reasons, Your Honor.

Number one, they might not be very smart and they actually think they can’t compete.

Number two, they might want to get in just to make sure that they have a right to construct and they will approach… and this is happening across the country… they’ll approach the existing franchisee, perhaps merge, and we’ll get a big cash settlement out of it.

That is a motivation for competition in many situations, and cable companies across this country are selling out.

You’ve seen this selling out process, which is one consideration the City takes when they regulate cable, is that we try to make sure that this sales differential, the premium that is being paid on to the new cable company is not placed in rates.

However, that process, rate regulation, is now being phased out so we probably will not be able to do that again.

But we have substantial governmental interests, assuming as we have that cable is a natural monopoly and that there will only be one cable company in there, multiplicity… pardon me, information diversity is a key issue which was discussed very thoroughly by Congress.

Edward J. Perez:

In the House report, pages 30 to 38, they balanced the interest, the First Amendment rights of the interest of the cable operator and the viewing subscriber.

And viewing subscriber is the paramount person under consideration, as this Court has held in other cases, and that’s important.

If Preferred Communications wishes to communicate over cable, we’re not preventing that.

Look at Cleveland.

We referenced that in our brief.

They have a microwave system in their cable programming, without utilizing government property.

Why should we allow Preferred to come in and utilize government property?

We should be able to manage our property in the public interest.

We acquired that property through eminent domain.

We have a fiduciary duty to protect the interest for all citizens, the poor and the rich, and we know that cable companies will not wire the poor areas.

They are going to wire the affluent areas.

That’s another substantial governmental interest in our process.

It’s a very reasonable process, and this Court, in Perry, says alternative channels are very important.

So, in addition we have these access channels for preferred.

They really want to speak.

They really want to speak over cable.

They can get one leased access channel and have the same amount of time as CBS, ABC or NBC.

So, that leads me to one question.

Is constructing a cable system a First Amendment expression?

Do they really want to run the business, or do they want to express themselves over cable?

They can do it over cable through the access channel, through microwave.

They can have some [inaudible] systems set up, low powered TV.

There are many, many ways for them to speak over the medium they claim they wish to speak on.

We are not preventing them.

What we are doing is regulating our right of ways in the public interest.

Finally, as I mentioned, we really don’t believe a trial is necessary.

There is ample information before this Court.

We ask this Court not to remand.

We ask this Court to reverse the Ninth Circuit.

With remand we are going to have lawsuits all across this country.

Edward J. Perez:

They are unnecessary.

I appreciate your concern, Justice O’Connor, but there is ample information before this Court, as this Court recently held in Clark versus Community for Creative Non-Violence which had much less information before this Court than we believe is here today, this Court rendered its decision in a First Amendment case.

Thank you very much.

Warren E. Burger:

Mr. Farrow.

Harold R. Farrow:

Mr. Chief Justice, Members of the Court:

Before I begin by answering some of the questions posed by Mr. Perez, let me deal with one.

Sandra Day O’Connor:

Mr. Farrow, It is difficult to hear you.

Do you think you could raise the podium, or speak up?

Harold R. Farrow:

Is that better now?

Yes.

Harold R. Farrow:

All right.

Thank you.

Let me deal with one critical question.

When Mr. Perez first began, he like all of us do, as we try to phrase the exact question that was answered by the Ninth Circuit, said it right.

He said the question was whether or not Preferred was entitled to build its cable system on public utility poles and in public utility context.

He didn’t say anything about public property at that time.

It was only later when he said, he’s saying that there is no constitutional right to build on public property.

Now, when the Ninth Circuit posed the question it said, you know, is there a right to limit this thing, and it used in there, in its phrase,

“public utility facilities and other public properties. “

Now, that bit of surplusage had been the source of a major amount of confusion, and on the briefs before you.

The language is “surplusage”, though.

In 1956–

William H. Rehnquist:

What language is “surplusage”?

Harold R. Farrow:

–Pardon me.

The portion of the question posed by the Ninth Circuit when he says, does the City have the right to limit access to public utility facilities and other public property, and “other public property” indicates that we are dealing with a form case in some fashion.

That is the confusing part.

If I may–

William H. Rehnquist:

Are you going to say it was unnecessary for the Ninth Circuit to phrase it that way?

Is that what you mean by “surplusage”?

Harold R. Farrow:

–Yes, sir.

Harold R. Farrow:

It was surplusage for the Ninth Circuit.

They didn’t need to add that phrase.

If they left that phrase out it would have been more exact for the question produced.

If you look at paragraph 8 of the complaint, we carefully allege in there that Preferred, having been formed as a cable company, went through the utilities, the public utilities, privately owned public utilities, and asked for service which is legislatively defined in California as a public utility service, pole attachment service that was made available to a class of people.

They are a member of the class, pole and cable television companies, nothing in there about being franchised or licensed cable television company.

The statute says they’re entitled to it, and it’s available from the public utility as a public utility service.

Public utility says that’s wonderful, we’re in a business providing that, we accept that, we’ve been doing it for 20 years, but you’ve got to have a license first.

William H. Rehnquist:

When you say public utility, are you talking about as a public utility owned by the City of Los Angeles?

Harold R. Farrow:

No, sir.

I’m talking at this stage about Pacific Telephone Company.

William H. Rehnquist:

A privately owned public utility?

Harold R. Farrow:

Right, privately owned public utility, all right.

It says, you’ve just got to get a license first.

As soon as you’ve got a license, we will let you on our poles.

We will provide you pole attachment service.

Better than that, we’ll even provide, if you like, we’ll provide you channel lease services.

Byron R. White:

What about the streets?

Harold R. Farrow:

If I may, the public utility, the telephone company in California, has an easement granted by the State over… not the City but by the State… over all easements, all public rights of way in its whole operating territory.

Now, when it provides this public utility service, the pole attachment service, it provides it with its poles, its conduits, its anchors, its guys and tis easements and rights of way over both public property and over private property, just like it uses all of those things to provide you telephone service, or provide somebody transmission service.

These things are in its rate base.

It’s defined as part of the pole line account by the Uniform Central Accounts which were established by the FCC and adopted by the State of California.

It charges money for them.

It gets a rate of return for them.

And so that, when it is providing this service, it is providing… now, we’re talking about the utility property and not public property.

Lewis F. Powell, Jr.:

Mr. Farrow.

Harold R. Farrow:

Yes, sir.

Lewis F. Powell, Jr.:

I take it you’d have a different case if the City of Los Angeles owned its own electric and telephone companies?

Harold R. Farrow:

No, Your Honor, for this reason.

The City does–

Lewis F. Powell, Jr.:

You have been making that argument, haven’t you?

Harold R. Farrow:

–No.

Lewis F. Powell, Jr.:

I thought you–

Harold R. Farrow:

I haven’t finished the argument.

Let me touch it.

It’s due with it, because, you see, there is coincidentally, it happens in Los Angeles and in a few other places that municipally owned power company–

Lewis F. Powell, Jr.:

–You have that in a good many cities.

I don’t suppose–

Harold R. Farrow:

–And that power company does own some poles.

Most of the poles it owns, 85 to 90 percent of the poles that the City’s power company owns are jointly owned with the telephone company, and by contract under the joint pole, Southern California Joint Pole Association, a copy of which has been [inaudible] to this Court, control of the communication space on the power poles is surrendered to the telephone company.

And so, when a cable operator goes to the phone company, he gets the right to use the phone company’s solely owned poles and all the communications space on the joint poles.

But there’s still a few poles left there.

There are a few poles that only have power on them.

You know, you’re not conscious of poles until you get into this silly business.

When you get out there, as you walk along you’ll see there are some poles with the power lines running off the top, and there are no telephone facilities in the communications space.

Sometimes, those poles are used, or useful by cable television companies.

William H. Rehnquist:

–And those poles are owned by the cities?

Harold R. Farrow:

Those are owned by the City, and for 20 years or more the City of Los Angeles has made those poles available to cable television companies for money.

They’re in the business of providing the same pole attachment service that the telephone provides.

They charge money for it, just like the telephone company does.

It is a service, which the State Legislature has defined as a public utility service.

William H. Rehnquist:

Well, have they made those poles available to multiple franchisees in the same areas?

Harold R. Farrow:

Your Honor, I don’t know the question… I don’t know the answer to that.

I just know that they have never denied use of that to anybody who has been a cable company–

William H. Rehnquist:

Well, they certainly denied it to your client.

Harold R. Farrow:

–In this area, but not because… not because of the fact that we could use those poles.

Let me point out to you that when you go to the telephone company, to show you the difference here, you could get the pole attachment service but you could also get the channel lease service.

Under a channel lease service the phone company builds all the distribution plant between your head-in which is on private property, and your customer who is on private property.

It builds and owns all of that, and it uses it solely on poles, jointly on poles.

Its rights of way on public and private property, and its right any time it wants and needs them pursuant to the joint pole agreement, to buy and use communication poles space on any city municipal pole.

Now, if you… we can do that.

Harold R. Farrow:

That is the most perfect of all leased channel facilities.

If you really want to have something other than building your own system, and to talk about a cable company ought to be satisfied, well, these channels, that’s the best because you can get as many channels as you want, 100 channels.

You get then at reasonable rates.

You don’t have the business of Congress saying to the lessor that he can discriminate based upon a programming content.

And you can get all of them.

You can get all of those groups.

William H. Rehnquist:

Are you defending the Ninth Circuit opinion in this case, Mr. Farrow?

Harold R. Farrow:

Yes, sir, Your Honor.

I’m trying, though, to answer the questions that were posed by… but let me say, just to finish that thought, when you go to the phone company to get that lease-back service, that leased channel service, they say to you once again, we still won’t let you have it until you get a license.

What we’re dealing with in this case, it’s not a forum case.

We’re dealing with a licensing case.

The City won’t give one license out, because if it limits the licenses it puts a value into them.

And Mr. Perez even, inadvertently, I believe, admitted that a moment ago when he spoke of the premium.

People are trying to get into the business so they can sell at a premium.

What’s happened is, if you limit access to the market you build in a false value to the monopolists that you choose, and that is the premium he’s talking about, and the cities have discovered that.

William H. Rehnquist:

But now, the court of appeals said that the First Amendment prevented the City from doing this.

You’re making a bunch of economic arguments, as I understand, that might make some sense to a legislature but I don’t see that they bear on the First Amendment at all.

Harold R. Farrow:

My point, Mr. Justice, was that we’re not dealing with a form case, a public property case.

We’re dealing only with a simple licensing of speech case, and so that the Ninth Circuit was correct, they cannot limit access.

Limiting the access is a discretionless, standardless… pardon me, standardless denial of the right to speak.

William H. Rehnquist:

Is that because of the way that the bidder or the franchisee is chosen, or do you say that they couldn’t limit it no matter how the franchisee is chosen?

Harold R. Farrow:

I don’t believe, if we were 50… if we were 30 years ago when we had to use city streets, 30 years ago before the dedication of these services by the public utilities, I believe that we would have been in a designated forum and that would have been a test.

The O’Brien test would have been the right test.

But, because we are not using public property and because it is a simple denial of the franchise to speak, I think we’re dealing with–

William H. Rehnquist:

But I thought you said you were using some public poles, a moment ago.

Harold R. Farrow:

–No, sir.

William H. Rehnquist:

Well, did… I misunderstood you then, because I thought you said that you would have to use some publicly owned power poles.

Now, is that or is that not correct?

Harold R. Farrow:

The answer is half true, okay.

The question was… you use those poles of the city, perhaps, perhaps.

Harold R. Farrow:

You don’t need them.

But you could use those poles solely owned by the City where they have put them into the… dedicated to the provision of providing a public utility service.

If you went to the Department of Water and Power and said, I want electricity for my house, that’s all I want, they’re going to deliver that by these same poles which are dedicated to the provision of a service which has been legislatively defined as a public utility service.

They can’t deny you that service.

That’s what we’re saying.

So, as–

William H. Rehnquist:

But, you’re not a customer going to them and asking them for electricity.

You’re a cable television company that wants to string a new set of antennas and so forth.

Harold R. Farrow:

–No, Your Honor.

We are a customer going to them and saying, we want the public… we want pole attachment services, and they’re saying, you can’t have it unless you have a franchise.

If you look at the city’s franchise, look at what they granted, at the actual grant here, in this case.

A week after we filed this complaint they selected a monopolist, and they granted him that.

And if you look at what they did, they break the franchise into three parts.

There are three parts–

Byron R. White:

What page?

Harold R. Farrow:

–Let’s see, it’s in Joint Appendix… one second… it would be page 215,

“Nature and Extent of the Grant. “

A, it grants the right to engage in business; B, the right to erect… to build a plant; C, the right to maintain and operate the plant.

And all we wanted was A.

They don’t give us just A.

You’ve got to take B and C, and you can’t get B and C unless you go through the option, pay the money, win the game.

Byron R. White:

Well, Mr. Farrow, do you think the City… I take it you think the City may not condition the right to run a cable system on a license at all.

Harold R. Farrow:

That’s right.

Byron R. White:

Franchise at all?

Harold R. Farrow:

I believe–

Byron R. White:

You just can’t go through that process?

Harold R. Farrow:

–It is… we all admit, it is a publishing business.

The process is–

Byron R. White:

–And I take it you would say that the City couldn’t limit the number, even if they said, well, six companies may do so but not seven?

Harold R. Farrow:

I think that would be wrong, yes, sir.

Harold R. Farrow:

The chance… six or seven is, you know, beyond the realm of possibility.

Byron R. White:

Strictly a market–

Harold R. Farrow:

But if there were six or seven, because the customers wanted to pay for it.

Byron R. White:

–Well, what about the point that… I take it your answer has to… I guess I know what your answer is.

Since they can’t license at all, they can’t limit the license to one on the first go-around, do you agree that the license that has been issued in these areas is not exclusive?

Harold R. Farrow:

If by its terms it says it’s not exclusive, and the reason why historically that’s so… by the way, there are a number of overlapping–

Byron R. White:

You are saying, they say they are non-exclusive?

Harold R. Farrow:

–They say by their terms, they are non-exclusive.

The only exclusive franchise, well, I know of two that were issued, by the term “exclusive franchise” in California, one was down in Southern California, a town with a name I can’t remember, that question of exclusivity that was tried at the lower court, the lower court held it was unconstitutional of the state constitution to be exclusive, and it was… that exclusivity was denied.

The other one was surrendered voluntarily by the cable operator.

There may be others, but I’m not–

Byron R. White:

I take it that since the public property issue may influence the decision, I take it we’d have to look at every city in the country, at least deciding this case wouldn’t decide the cases in other cities?

Well, if you win here, it may be that in other cities the lawyer in your position would lose?

Harold R. Farrow:

–If we win on this point in California, that would settle the issue in California, because we have the California legislature.

There is a comparable statute, federal statute, Section 224, 47 U.S.C. 224, it is the Federal Code Bill where the feds do the same thing that the State does.

It was adopted, I think within a year or so after the adoption of 767.5 of the Public Utilities Code in California.

It is not the exact, same wording.

For example, in California the statute actually spells out the word, identifies the words, “public utility service”, whereas the federal doesn’t use that–

Byron R. White:

Doesn’t the federal law–

Harold R. Farrow:

–They put it into the Common Carrier section of the Communications Act.

Byron R. White:

–Doesn’t the federal law contemplate the issuance of franchises or licenses by localities?

Harold R. Farrow:

Federal law says only that it can issue one or more.

Byron R. White:

Well, but that means it anticipates that there will be licenses issued, isn’t that right?

Harold R. Farrow:

Licenses issued, yes, I guess.

Byron R. White:

Well, then you say that statute must be unconstitutional?

Harold R. Farrow:

If… I have a license, business license as a lawyer.

I assume that you’re… you know, if it’s a–

Byron R. White:

You just told me your case was that the City had no business issuing a license at all.

Harold R. Farrow:

–Then I misspoke, and overspoke.

If it’s going to use the standard business license where if anybody, you know, where the legislature sets the rules and says that, you know, if you’re going to run your business run it by these standards, then that’s fine, okay.

Harold R. Farrow:

Then they can require a license.

Each one can come in and have a constitutional right–

Byron R. White:

You mean, they can… so you agree, the City could insist that before you run your cable system you have to get a license from them?

Harold R. Farrow:

–Yes, if it’s an ordinary business license.

Byron R. White:

Ordinary business license, like you have to have some qualifications?

Harold R. Farrow:

Yes, sir.

Byron R. White:

So, they can treat you different than a newspaper?

Harold R. Farrow:

No, I don’t think they can treat me different than somebody else who wants to be a cable operator.

They can say, for example, in an ordinary time, place and manner, you can’t put yourself on the poles unless you provide insurance, so if the case falls off the pole and hurts some people, you know, that you should have insurance.

You know, that’s a reasonable legislation.

You can say, you know, you shouldn’t elect for future customers.

You shouldn’t steal from your customers.

You shouldn’t run [inaudible] lights.

You know, ordinary, reasonable health, safety and welfare–

Byron R. White:

Well, then, the City could issue one license at the first option and then they could issue another at the next option?

Harold R. Farrow:

–No, sir.

In that case, if they’re doing that… if they’re doing that, they’re discriminating between would-be publishers, so it’s to give one an advantage to get into the market and to get a complete head start while the other one waits, then that’s not proper–

As a matter of fact, the cities use the non-exclusiveness of the license that they issue as a way of controlling the speaker they’ve got, so–

Byron R. White:

So you think–

Harold R. Farrow:

–Watch out, I’ll bring you competition.

Byron R. White:

–They… in their process they should have some minimum requirements that operators must meet?

Harold R. Farrow:

Right.

Byron R. White:

And then anybody who measures up to then ought to have a license?

Harold R. Farrow:

That’s right.

Byron R. White:

And as many as apply, if they all qualify, meet those minimum standards, there should be that number of licenses issued?

Harold R. Farrow:

That’s right.

Sandra Day O’Connor:

Well, what if there are some physical limits to the number of cables that can be strung in the amount of space in the eight of way to be occupied?

Harold R. Farrow:

The physical limit issue was tried in the Eculder cases, and there [inaudible] distribution plant that in fact demonstrated there was room for at least four, and there were only two trying to deal in business affairs at the time.

It could be that, you know, it could be that there is a finite limit to how many people you can put on the pole, but those come in increments of five feet, and an ordered rearrangement for the first cable operator, you have to rebuild some of those poles.

Sandra Day O’Connor:

Well, if there were physical limitations, do you agree that the City could take that into account–

Harold R. Farrow:

Yes, if they could prove–

Sandra Day O’Connor:

–in limiting its franchises?

Harold R. Farrow:

–If they can prove a physical limitation, then we’re dealing in a whole other ball game.

Then we’re dealing with something like broadcast.

But, they would have to prove that, that’s not so.

Basically, here to China you can put cable systems from now on.

There’s no logical way they could be… like physical… like when you run out of space on the poles you go underground.

Sandra Day O’Connor:

Do you think the City can legitimately consider the economics of this situation in issuing the franchises, or must that be something the City cannot consider?

Harold R. Farrow:

No, Your Honor.

They have no business in there, no more business in there than they have in running a newspaper.

If a man wants to lose money publishing what he believes to be his views, he should have the constitutional right to do so.

And If he’s mistaken or foolish, then he should have the right to do that, to be a constitutionally foolish publisher.

There may be some in business.

John Paul Stevens:

Mr. Farrow, if you agree, as I think you did, with Justice White that–

Harold R. Farrow:

I am sorry, Your Honor.

I did not hear you.

John Paul Stevens:

–If you accept the proposition that the license would just impose some standards, health, safety and so forth, on it–

Harold R. Farrow:

Yes, sir.

John Paul Stevens:

–What is it in this bid proposal that you describe as unacceptable standards?

Why aren’t these standards in this proposal acceptable?

Harold R. Farrow:

Well, in the RFP, when you come in to apply for it, one of the things that they do is examine your character as an [inaudible] and they also ask you what your proposed program is.

John Paul Stevens:

All right.

Harold R. Farrow:

I don’t think it’s any of their business what your proposed program is.

But here’s a question, question No. 9 on page 143.

“Has applicant or any principal ever initiated litigation against a franchising authority, or had a franchising authority initiate litigation against it. “

You think about that question, and you think about the question they’re asking about your proposed programming, you can see the immediate risk of either viewpoint discrimination or individual discrimination.

But, you don’t even have to guess about it.

John Paul Stevens:

I don’t think that’s responsive to my question.

I’m not asking you what kind of questions you’d rather they didn’t ask you.

I’m asking you if there are requirements in the bid proposal that you feel you should not be compelled to comply with.

Harold R. Farrow:

Well, then if you turn to page… let’s see, 213 of the actual ordinance they did, there is a whole list of programming.

For example, in the programming requirements that start, I believe, on page 2… something or other here, run for four or five pages and specify exactly what these people have to carry in a program.

In addition, you find that–

John Paul Stevens:

Well, one of them was that you have to make, I think two channels available to the City or something like that.

Harold R. Farrow:

–Oh, yes, you’ve got to give channels–

John Paul Stevens:

Do you think the City doesn’t have power to do that?

Harold R. Farrow:

–No, sir.

I don’t think they have the right to demand any percentage use of your channel capacity, any more than they have the right to use any one of… you know, one out of every five taxicabs in a fleet of taxicabs.

The idea that because you’re in a publishing business, they can–

John Paul Stevens:

Do you think the Federal Communications Commission would not have the power to make a similar requirement?

Harold R. Farrow:

–Pardon me?

John Paul Stevens:

Would the Federal Communications Commission have the power to make a similar requirement against the networks?

Harold R. Farrow:

I don’t believe so.

I don’t think it would make any difference which level of government was taking your property away from you.

It’s a Fifth Amendment taking.

And when they take it they ignore, should there be a requirement that you have to give it to–

Thurgood Marshall:

Mr. Farrow, you point out five or six pages there.

Do you read one regulation that you complain about, and why?

Harold R. Farrow:

–On page 235,

“Inspection of Property and Records. “

“You have, in effect, a Fourth Amendment search here, the power of the city to an operating publisher to come in and inspect all your records about every affair or transaction of your business whenever they choose. “

That’s… for example on page 237, the section that reads, “Signal Carriers and Channel Allocations”.

They tell you for three or four pages there what you must carry in the way of programming.

On page 245 they require you to spend $100,000 per year for production contract, to give that to some outsider.

You know, that’s not part of your business.

Somebody that is satisfactory to a commission, that they… that should they set up that they have to prove, we have to make available to this outside production company a line of credit of half a million dollars.

In year five you’ve got to spend another $250,000 for a broadcast studio for them, and provide another $250,000 fund to pay community producers after five years, or after year five.

There are just a number of those types of things where they’re saying the premium, the price, the bribe for the exclusivity, the de facto exclusivity, we’re going to give you.

This is what the price is.

And if we cannot maintain that de facto exclusivity, we can’t get all of the–

Sandra Day O’Connor:

Well, Mr. Farrow, I understood that the allegations of your client’s complaint was that they were perfectly ready, willing and able to meet all the requirements, just asking that they be given a franchise.

Harold R. Farrow:

–Perfectly willing and able to meet all proper police power requirements.

Those requirements, we would have argued about.

If they believed that that is a proper requirement in order to get a license, let them pass a rule that says, all cable operators must do these things.

And then you can either do them, or you can test [inaudible] in the regular way.

But, you don’t have to risk the right to be a publisher in order to quarrel about it.

You see, what happens is, this process traditionally, we talk about is, by saying we’re going to do one at a time, it’s going to be non-exclusive, and we’re going to constantly hang over your head the threat of competition and the threat of non-renewal that control the press, right, and the applicants can’t complain about it.

You remember, they asked you a while ago, what other franchising, sir, have you ever sued?

You sue one, the next time you to to them they’re going to remember it and they’re going to know about it and you’re not going to win that discretionless award of the thing.

William H. Rehnquist:

Well, maybe they don’t want to deal with deadbeats.

You presumably have to pay a certain percentage for the franchise.

Harold R. Farrow:

A bonding requirement might be appropriate, and for any proper fees that are due, or any proper situation, it might well be that they’re entitled, and require a bonding requirement.

William H. Rehnquist:

Well, why isn’t it perfectly legitimate, if they’re expecting a percentage of your revenues as a franchise fee, for them to say, we want to know if you’ve been in any legal disputes.

Harold R. Farrow:

I think that if you… I think that is an impermissible request to deal with… maintain a control over a publisher, and that kind of request frightens the publisher, the effect of which, what you have is, the form of the press which is moist valuable in this country to report on local government, school councils, city councils, school board, whatever, is frightened to speak out.

You know, just as you don’t hear CBS doing exposes on the FCC, you don’t hear cable companies doing exposes on what’s going on down at City Hall.

You just don’t dare.

Your very existence depends upon the continued good will of this franchising authority under this process.

Byron R. White:

But you did apply for… you did go to the City and say, “Get me a license”?

Harold R. Farrow:

Right.

Byron R. White:

What did they say?

Harold R. Farrow:

They said–

Byron R. White:

They said no, but why?

They must has given you some reason.

Harold R. Farrow:

–Have to go through the RFP process.

You can’t just have Section A alone, can’t have just one of these.

You’ve got to take them all, you know, so you’ve got to go down and you’ve got to compete under that process.

John Paul Stevens:

May I ask if you… do you object to the five percent franchise fee, the revenue?

Harold R. Farrow:

Well, that’s not in this lawsuit.

But it will certainly be in one in the near future, without any question.

The concept that five percent of the gross revenue, over and above any cost of regulation, can be siphoned off this, of course all these other things, seems totally inappropriate to me.

Harold R. Farrow:

I mean, it seems to me, you know, that… you have this strange situation where, you know, government intrusion into the affairs of business generally are the lightest when you deal with retail or light manufacturing, and if you’re going to carry acids or frozen materials you get a little bit more government regulation, because of safety problems.

Then, if you’re a public utility, you get even more because now they’re going to regulate your rates and your capital costs, or whatever.

These processes start off with utility regulations and then add more.

They’re going to run your programming.

They’re going to tell you how to handle your customers.

They’re going to tell you how or whether or not you can stay in business.

And they’re going to supervise you, like these boards that you have to set up here, spelled out in this thing, that they approve all of that.

It goes on and on.

And the question, if I can, I say let me deal just quickly with a couple of points I’ve raised.

We’re talking about cream skimming.

You know, in the materials that are lodged with the Court are the materials from Palo Alto, even though it’s a different lawsuit than the L.A. lawsuit.

They were filed with the Ninth Circuit in connection with a motion for filing an amicus brief, and they’ve traveled with it and they’re here.

In Palo Alto, those documents demonstrate that Palo Alto, Menlo Park and East Palo Alto got together as a franchising authority run by the City of Palo Alto.

East Palo Alto is the ghetto, on the wrong side of the freeway, 160 homes per mile of town.

Atherton is the Beverly Hills of the peninsula, 40 homes per mile of town.

The critical factor in the choice of the franchisee there was whether or not each household in the whole area would get exactly the same pricing treatment–

[inaudible]

The Mayor of Atherton wanted to make sure that his house… his house is up there, his estates… didn’t get charged a higher price than they did down in the ghetto.

Now, here we are in Los Angeles with two black professionals trying to get the right to build the black section, the Watts section of Los Angeles.

The rest of the town has been built for years, and when they talk about cream skimming it seems almost superficial.

One last thing, we have mentioned… there’s been mention at several [inaudible] about the potential for corruption, and improper government that comes about with this kind of a pork barrel… in Sacramento, there’s a piece of litigation going on and Sacramento is going to make its brief in here too.

There’s a piece of litigation going on here that demonstrates… as a matter of fact two pieces of litigation, demonstrate that there the City and County got together and gave a nonexclusive franchise to a cable television company which agreed to pay certain kinds of these, what I call bribes, so long as they were protected from competition.

The total of that money for the term, 15-year term, is roughly $50 million.

According to a complaint filed by the City against that cable company, the amount of money in 1986 alone, that that involved, was $10 million.

Now, in the minute Sacramento lets a second cable operator in there, they lose those goodies.

That’s what we’re dealing with, with this RFP process.

Lewis F. Powell, Jr.:

May I ask before you sit down, is the… is a copy of the application that your client filed with the City in the record?

Harold R. Farrow:

No, Your Honor.

Lewis F. Powell, Jr.:

It is not?

Harold R. Farrow:

No.

Warren E. Burger:

Mr. Perez.

Edward J. Perez:

Yes, Mr. Chief Justice.

There is a point I’d like to make, but I would first offer myself open for any questions of the Court.

One point I want to make, Your Honor, and I would like to address this to Justice O’Connor, I appreciate your concern, Your Honor, about the facts in the complaint, but our position is that even if they are all true, the City still acted reasonably.

We made certain legislative assumptions based upon experience with other cities, as this Court said we may do in the Redman case, so even if the facts are true and even if we acted and it turned out to be different than what we assumed, that’s not important.

As a matter of law, this Court can still hold that there is no constitutional right to construct a cable system in Los Angeles, and that the City acted reasonably.

John Paul Stevens:

May I ask you one question that occured to me.

Assume for the moment that there were no physical problems of tearing up the streets and clutter and litter and all that, but just the economic interest at stake and the interest in kind of managing a good operation, you might say.

Do you take the position that the economic interest alone would be sufficient to justify a municipal decision to license only one operator, even through it were economically feasible to have four or five?

Edward J. Perez:

I think I’m a little confused at one point.

You mentioned economics.

I’m thinking of a natural monopoly theory.

Is that what you are referring to?

John Paul Stevens:

Assume that you couldn’t prove a natural monopoly, but rather the City just thought that it would be in the interest of the public if they were able to manage an operation and it met all the standards that you’ve got here, to be sure they have good management and adequate programming and the right kind of programming.

Would you think the City would do that, just for that one interest in the kind of operation that it would be–

Edward J. Perez:

I believe so, Your Honor.

And I think, as part of that… you can’t separate it completely.

Part of that is the fact that if you have multiple systems, you have multiple–

John Paul Stevens:

–And I say, put to one side all of that.

Assume that you don’t have those kinds–

Edward J. Perez:

–You’ve just got one, yes, Your Honor.

Byron R. White:

–Do you think the City of Los Angeles could have said, we’re not going to grant any franchises, we’re going to run our own cable television operation in the whole city, it will be the sole operator of cable television in the City of Los Angeles?

Would that stand up under the First Amendment, do you think?

Edward J. Perez:

I think the City if they wanted to could operate a cable television system.

Certainly, if the municipality did that, there would have to be a real close scrutiny of any kind of content and programming.

Byron R. White:

You would be deciding all the time what the program was, the City would be?

Edward J. Perez:

You’d have to divorce it and have a separate–

Byron R. White:

I take it there are a lot of… aren’t there a lot of cities that run their own cable system, or not?

Edward J. Perez:

–There are some, Your Honors.

I don’t know how many.

Edward J. Perez:

But we could run and construct the system, which is what the telephone company does in Wisconsin, for instance, and we can construct it and lease it back.

There’s nothing wrong with that.

Byron R. White:

Well, yes, but how about your operating it?

How about your operating it, your being the sole voice that the people hear on the cable?

Edward J. Perez:

That could cause some problems.

That’s why we’re not doing it in Los Angeles, Your Honor.

Thank you.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.