1

United States Court of Appeals,

Fifth Circuit.

No. 96-60427.

CITY OF DALLAS, TEXAS; City of Laredo, Texas, Petitioners,

v.

FEDERAL COMMUNICATIONS COMMISSION; United States of America,

Respondents.

July 31, 1997.

Petitions for Review of an Order of the Federal Communications

Commission.

Before REAVLEY, JOLLY and BENAVIDES, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

States and municipalities routinely charge a franchise fee for

the right to operate a television cable system within its

jurisdiction. Congress has required, however, that these fees be

no more than five percent of a cable operator's "gross revenue."

47 U.S.C. § 542(b). In a final order, the Federal Communications

Commission determined that a cable operator's gross revenue does

not include money collected from subscribers that is allocated to

pay a franchise fee. The cities of Dallas and Laredo, Texas appeal

this final order, contending that the FCC has ignored the plain

meaning of "gross revenue."

On appeal, the FCC presents several arguments in support of

its position. The FCC first maintains that because the statutory

definition of "gross revenue" is ambiguous and its interpretation

is reasonable, we must defer to that interpretation. The FCC also

contends that because a cable operator merely collects franchise
2

fees from subscribers on behalf of local governments, the fees do

not constitute revenues for the operator. We reject both

arguments. We hold that cable operator's gross revenue includes

all revenues, without deduction.

I

This case began as a dispute between the City of Baltimore and

a local cable provider, United Artists Cable of Baltimore ("UACB").

UACB had agreed to pay Baltimore a franchise fee equal to 5 percent

of its "gross revenues." In calculating its gross revenue, UACB

did not include money received from subscribers that it allocated

to paying the franchise fee. For example, if a customer's monthly

bill was $30.00, UACB would divide the bill into two portions:

$28.56 allocated to "cable services," and $1.44 (i.e., 5% of

$28.56) allocated to pay the franchise fee.

The City of Baltimore contended that this method of

calculation was incorrect. Instead, Baltimore argued that under

the franchise agreement, UACB was required to pay 5% of the full

sum collected from subscribers. Therefore, if a customer's bill

was $30.00, the franchise fee would equal $1.50. Baltimore adopted

a city rate resolution requiring UACB to include in the "gross

revenue" calculation all money collected from subscribers,

including money that was designated to pay the franchise fee.

UACB appealed the rate resolution to the FCC's Cable Services

Bureau. UACB contended that Baltimore's method of calculating the

franchise fee violated 47 U.S.C. § 542(b), which provides:

For any twelve-month period, the franchise fees paid by a

cable operator with respect to any cable system shall not
3

exceed 5 percent of such cable operator's gross revenue

derived in such period from the operation of the cable system.

The Cable Services Bureau issued an order directing that under

Section 542(b), gross revenue did not include the amount collected

by the cable operator that was allocated to pay the franchise fee.

The Bureau reasoned that under Section 542(b), franchise fees are

a tax calculated as a percentage of gross revenue, and are not part

of gross revenue: "[U]nder the Act, a cable operator's gross

revenue is revenue derived "from the operation of the cable

system.' Franchise fees, on the other hand, are not revenues

derived "from the operation of a cable system,' but rather are a

charge levied by the franchising authority...." The Bureau's order

concludes, therefore, that money allocated to pay franchise fees is

not part of a cable operator's gross revenue.

The cities of Dallas and Laredo, as well as other

municipalities, petitioned the Cable Bureau for reconsideration.

The FCC released a Memorandum Opinion and Order (the "Commission

Order"), denying the petitions for reconsideration, and upholding

the order of the Cable Services Bureau.

The Commission Order notes that

the Bureau's holding is the most reasonable and correct

interpretation of the statutory language at issue that is

consistent with Congressional intent. Nothing in the

statutory provisions of the Cable Act states that franchise

fees are to be included in calculating an operator's "gross

revenues."

Commission Order at ¶ 14.
 

1Dallas and Laredo appeal pursuant to 47 U.S.C. § 402(a) and

28 U.S.C. § 2344, which allow any party aggrieved by the final

order of the FCC to file a petition to review the order in the

court of appeals where venue lies. 

 

2See, for example, the comments of Justice Scalia:

In my experience, there is a fairly close correlation

between the degree to which a person is (for want of a

4

Dallas and Laredo appeal this final order.1

II

 Our standard of review for deciding this appeal is governed

by Chevron USA v. Natural Resources Defense Council, 467 U.S. 837,

104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under Chevron's familiar

two-step test, we first examine the statute for ambiguity using the

"traditional tools of statutory construction." Id. at 842, 104

S.Ct. at 2782. We must attempt to find the meaning of the statute

looking at the "particular statutory language at issue, as well as

the language and design of the statute as a whole." K Mart Corp.

v. Cartier, Inc., 486 U.S. 281, 291, 108 S.Ct. 1811, 1818, 100

L.Ed.2d 313 (1988). Chevron did not eliminate the judiciary's

proper role; the judiciary retains the right "to say "what the law

is,' that is, to interpret statutes." Mississippi Poultry Ass'n,

Inc. v. Madigan, 31 F.3d 293, 299 (5th Cir.1994) (quoting Chevron,

467 U.S. at 843 n. 9, 104 S.Ct. at 2781 n. 9). Nonetheless, if

after applying these tools of statutory construction a court finds

that a statute is ambiguous, it must defer to an agency's

reasonable construction. Chevron, 467 U.S. at 843-44, 104 S.Ct. at

2781-83. Although there may be some debate about exactly when

Chevron 's deference arises,2 the court is duty bound to look at
better word) a "strict constructionist" of statutes, and

the degree to which that person favors Chevron and is

willing to give it broad scope. The reason is obvious.

One who finds more often (as I do) that the meaning of a

statute is apparent from its text and from its

relationship with other laws, thereby finds less often

that the triggering requirement for Chevron deference

exists. It is thus relatively rare that Chevron will

require me to accept an interpretation which, though

reasonable, I would not personally adopt.

Antonin Scalia, Judicial Deference to Administrative

Interpretations of Law, 1989 Duke L.J. 511, 521 (1989). 

5

obvious sources that may reveal what meaning Congress intended to

invoke when using a phrase. Dictionary definitions, industry

practice, and accounting standards are prime sources for the court

to determine congressional intent. With this method of analysis

established, we consider the substance of this appeal.

III

This appeal requires us to resolve a single, narrow question:

Does Section 542(b) unambiguously mean that a cable operator's

"gross revenue derived ... from the operation of the cable system"

includes money collected from subscribers that is ultimately

allocated by the cable operator to pay a franchise fee? We hold

that it does. To demonstrate why we reach this conclusion, we

first examine the meaning of the words "gross revenue."

A

The text of Section 542(b) provides that the "franchise fees

paid by a cable operator ... shall not exceed 5 percent of such

cable operator's gross revenue derived ... from the operation of

the cable system." The phrase "gross revenue" has a generally

accepted meaning: unless expressly limited by the terms of a
 

3Webster's New International Dictionary, 1103 (2d Ed.1940)

defines "gross" as "Whole; entire; total; without deduction....

The gross earnings, receipts or the like are the entire earnings,

receipts or the like, under consideration, without any deduction."

6

statute, regulation or contract, gross revenues means all amounts

received from operation of a business, without deduction. For

example, Black's Law Dictionary defines "gross" as "before or

without diminution or deduction" or "not adjusted or reduced by

deductions or subtractions." "Gross Revenues" is defined by

Black's as "receipts of a business before deduction for any purpose

except those items specifically exempted."3

The Supreme Court has recognized that when a statute uses a

technical term, we must assume that Congress intended it to have

the meaning ascribed to it by the industry under regulation. See

McDermott International, Inc. v. Wilander, 498 U.S. 337, 342, 111

S.Ct. 807, 810, 112 L.Ed.2d 866 (1991). Industry accounting

practices require that money collected from subscribers to pay

franchise fees be included in gross revenue. The Financial

Accounting Standard Board's Statement of Financial Accounting

Standards No. 51 notes that "cable franchise fees are costs no

different than the general manager's salary, marketing costs, and

programming costs." Therefore, under the standard accounting

practices money collected to pay franchising fees are included in

gross revenue.

This definition of "gross revenue" is also consistent with how

the phrase is commonly defined by the courts. For example, in

United States v. Reitano, 862 F.2d 982, 985 (2d Cir.1988), the
 

4The Supreme Court has noted that a "fundamental canon of

statutory construction is that, unless otherwise defined, words

will be interpreted as taking their ordinary, contemporary, common

meaning." Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311,

314, 62 L.Ed.2d 199 (1979). Therefore, absent persuasive evidence

to the contrary, we are required to give "gross revenue" its

ordinary meaning. 

7

court held that under the gambling laws, gross revenue includes all

money coming into the possession of the business, regardless of the

source or purpose for which it is used. See also, Veterans

Rehabilitation Center, Inc. v. Birrer, 170 Mont. 182, 185, 551 P.2d

1001, 1003 (1976)(noting that "[g]enerally the term "gross revenue'

means gross receipts of a business before deduction for any purpose

except those items specifically exempted."); Public Service Co. of

Colorado v. Denver, 153 Colo. 396, 403, 387 P.2d 33, 36

(1963)(same); Lane Electric Cooperative, Inc. v. Oregon Dept. of

Revenue, 307 Ore. 226, 229, 765 P.2d 1237, 1238 (1988)(noting "the

term "all gross revenue' ... is to be construed in the broadest

sense, i.e., all money received"). We conclude that normally the

phrase "gross revenue" unambiguously means all revenues or receipts

of a business, without deduction. We must, therefore, consider

whether there is any basis to conclude that Congress intended—or

even may have intended—the term "gross revenue" to have a

specialized meaning in the context of Section 542(b). In other

words, applying the "traditional tools of statutory

interpretation," we must determine whether the term is ambiguous in

the sense that deference under Chevron is owed to the FCC's

interpretation of the term.4

B
 

5The FCC had primary authority to regulate franchise fees

before the 1984 Communications Act. 

 

6Cable Television Report and Order, 36 FCC 2d 141, 219-20

(1972)(the order provided for the approval of fees up to five

percent on a showing of need by the franchising authority). 

 

7Amendment of Part 76 of the Commission's Rules and

Regulations Relative to the Advisability of Federal Preemption of

Cable Television Technical Standards on the Composition of a

Moratorium on Non-Federal Standards, 46 FCC 2d 175, 202 (1974). 

8

There is nothing in the text of the statute, the structure of

the statute, or the sparse committee reports to conclude that

Congress intended "gross revenue" to have a specialized meaning as

used in Section 542(b). Nonetheless, the FCC maintains that the

meaning of the phrase in the context of the Section 542(b) is

ambiguous because when Congress drafted the laws regulating the

cable industry it was not drawing upon a blank slate. Instead, the

statutory regulation supplanted a long-standing regulatory regime

established by the FCC.5 In connection with this argument, we will

review briefly the history of the regulation of franchise fees.

In 1972, the FCC first adopted a rule limiting cable franchise

fees to three percent of an operator's "gross subscriber

revenues."6 The FCC defined "gross subscriber revenues" to include

[o]nly those revenues derived from the supplying of regular

subscriber services, that is, the installation fees,

disconnect and reconnect fees, and fees for regular cable

benefits, including the transmission of broadcast signals and

access and origination channels if any. It does not include

revenues derived from per-program or per-channel charges,

leased channel revenues, advertising revenues, or any other

income derived from the system.7

In 1977, the FCC revised its rules so that franchise fees

could be no more than five percent of "the franchisee's gross
 

8Amendment of Subparts B and C of Part 76 of the Commission's

Rules Pertaining to Applications for Certificates of Compliance and

Federal-State/Local Regulatory Relationships. See, 66 F.C.C.2d

380. 

9

revenues per year from all cable services in the community."8 This

revision had the effect of expanding the revenue base used to

calculate franchise fees.

However, when enacting Section 542(b), Congress did not use

the phrase "gross subscriber revenues," nor did it employ the

phrase "gross revenues per year from all cable services in the

community" to articulate the base upon which franchise fees are to

be calculated. Instead, Congress departed from the language used

by the FCC regulations, using the phrase "gross revenue derived ...

from the operation of the cable system."

Nevertheless, the FCC argues that this history demonstrates

that under the regulatory regime, the actual term "gross revenue"

or "gross subscriber revenue" was given an unusually narrow meaning

that excluded many forms of income. The FCC acknowledges that the

language used in Section 542 is different from that used during the

regulatory regime, but it argues that this difference actually

creates an ambiguity: the term "gross revenue," in the light of

the regulatory history, could either have a new definition or the

traditional regulatory definition. The agency therefore argues

that because the definition of "gross revenue" is ambiguous, under

Chevron their interpretation must prevail. We do not agree.

Under Chevron, we begin our interpretation of this statute

with the assumption that its unambiguous text accurately expresses
10

the legislative intent of Congress; such an assumption is only

buttressed when Congress fails to accept a choice, provided by

regulatory precedent, to use restrictive or artful language. We

therefore remain persuaded that Congress intended "gross revenue"

to have its normal, ordinary, and common meaning. We therefore

turn to address the FCC's final argument that Section 542(b) is

ambiguous.

C

The FCC finally contends that including revenue allocated to

pay franchise fees as part of a cable operator's "gross revenue"

creates peculiar consequences, which demonstrates that Congress did

not intend for "gross revenue" to have its usual meaning. We are

unswayed by this argument.

First, the FCC and the intervenors, National Cable Television

Association maintain that calculating cable bills using the

traditional definition of gross revenue produces "a never-ending

series of calculations—the mathematical equivalent to [a] hall of

mirrors":

Petitioners here contend that the maximum franchise fee should

be calculated as follows (1) Take five percent of the gross

operating revenues, i.e., revenues from subscriber services,

programming, and advertising; (2) add that amount to the

operating revenues; and (3) take five percent again of that

sum.

This argument can summarily be dismissed. A cable operator

calculates a franchise fee simply by paying to the franchising

authority an amount equal to 5% of its gross revenues. For

example, if a cable bill is $20, the cable operator must pay $1 in

franchise fees, and may keep the remaining $19. Alternatively, if
 

9In general form, the cable operator may first calculate its

subscriber charge net of the cost of franchise fees. Dividing that

sum by 0.95 produces the gross subscriber charge. 

11

the cable operator intends to pass the entire cost of the franchise

fee onto the consumer, it simply charges $21.05. It must pay 5% of

$21.05 ($1.05) to the franchising authority and it may keep the

remaining $20.9 No infinite series of calculations results. We

therefore conclude that "gross revenue" is unambiguous. We must

now resolve a final FCC argument.

IV

The FCC argues that, in any event, the term "gross revenue,"

even given its normal and ordinary meaning, cannot include money

collected to pay franchise fees. The FCC contends that a cable

operator is merely acting as a conduit, collecting franchise fees

from subscribers on behalf of the franchising authority, in the

same way as a merchant collects sales tax for the state. If this

position is correct, then regardless of the definition of gross

revenue, the sum collected to satisfy the franchise fee would not

be included in the operator's gross revenues.

Franchise fees are not a tax, however, but essentially a form

of rent: the price paid to rent use of public right-of-ways. See,

e.g., City of St. Louis v. Western Union Telegraph Co., 148 U.S.

92, 13 S.Ct. 485, 37 L.Ed. 380 (1893)(noting that the fee paid to

a municipality for the use of its rights-of-way were rent, not a

tax); Pacific Tel. & Tel. Co. v. City of Los Angeles, 44 Cal.2d

272, 283, 282 P.2d 36, 43 (1955)(same); Erie Telecommunications v.

Erie, 659 F.Supp. 580, 595 (W.D.Pa.1987), affirmed on other
 

10For example, in Lash's Products Co. v. United States, 278

U.S. 175, 49 S.Ct. 100, 73 L.Ed. 251 (1929), a federal law imposed

a tax on soft drinks "equivalent to ten percentum of the price for

which sold." Id. The taxpayer contended it was merely acting as a

conduit, passing the tax on to the consumer. Therefore, according

to the taxpayer, the tax should have been collected on the price of

the drink less the amount allocated to the tax. The Court,

speaking through Justice Holmes, rejected this position:

The phrase "passed the tax on" is inaccurate.... The

purchaser does not pay the tax. He pays or may pay the

seller more for the goods because of the seller's

obligation, but that is all.... The price is the total

sum paid for the goods. The amount added because of the

tax is paid to get the goods and for nothing else.

Therefore, it is part of the price.

Id. at 176, 49 S.Ct. at 100.

Other cases also have adopted this approach. 

 

11In introducing the final version of the Section 542(c)

amendment in 1992, Senator Lott noted:

I would like to offer my amendment ... dealing with

subscriber bill itemization, to give the cable companies

an opportunity to itemize these so-called hidden costs to

12

grounds, 853 F.2d 1084 (3d Cir.1988)(same in cable television

context). Furthermore, even if franchise fees were treated as a

tax, they would still be treated as a normal expense of doing

business unless the tax was imposed directly upon the subscriber.

Courts have held that gross revenue generally includes revenues

collected for taxes. See, e.g., Wirtz v. Charleston Coca Cola

Bottling Co., 356 F.2d 428, 430 (4th Cir.1966); Lucky Lager

Brewing Co. v. Commissioner, 246 F.2d 621, 623 (9th Cir.1957).10

A second argument that cable operators are acting as mere

conduits is based upon the format of cable bills. Under the Cable

Act of 1984, a cable operator is allowed to identify the cost of

government regulation on their subscriber bills.11 This format does
explain to people what is involved in the charges so they

will know it is not just the cable company jacking up the

prices.... The fact is sometimes the rates have gone up

because of hidden, unidentified increases in fees or

taxes which the cable [operator has to pay ]....

138 Cong. Rec. S. 569 (Dailey ed. January 29,

1992)(emphasis added). 

 

12We summarily dismiss the argument that applying the

"traditional definition" is in conflict with Section 542(b)'s goal

of restraining municipalities from "taxing [cable operator's] to

death." See, statement of Senator Goldwater, 129 Cong. Rec. 15461

(June 13, 1983). The difference between the traditional definition

of "gross revenue" and the definition urged by the FCC will not

result in a significant increase in cable bills. Under the

definition of "gross revenue" we adopt today, the franchise fee on

a $30.00 cable bill would be $1.50. Under the FCC's definition,

the cable bill would be $28.50 plus a $1.43 franchise fee, or a

total bill of $29.93 or a less than a one-quarter of one percent

increase. 

13

not, however, transform a cost imposed on cable operators into a

cost imposed upon cable subscribers. It is true that the Act

allows franchising authorities to directly impose franchising fees

upon customers. Given that such a fee would hardly be politically

popular, it is not surprising that most governmental entities have

chosen not to follow this course—and, in any event, that certainly

is not the case before us. When franchising agreements impose fees

directly upon cable operators, any money collected to pay those

fees will be part of the operator's gross revenue—which is the case

before us.

In sum, there can be no doubt that franchise fees imposed on

the cable operator are part of a cable operator's expense of doing

business. There is no plausible basis to conclude that cable

operators are acting as collection agents on behalf of franchising

authorities.12
14

V

In conclusion, gross revenue normally includes all revenue

collected from any source. No evidence has been presented to show

that Congress intended to depart from this standard definition of

gross revenue in enacting 542(b). Moreover, there is no evidence

that cable operators are merely acting as agents, collecting the

franchise fees on behalf of municipal governments. Therefore, all

money collected from subscribers, including funds used to pay

franchise fees, must be included in a cable operator's gross

revenue. For the reasons stated herein, the order of the

Commission is set aside and the petition of Dallas and Laredo is

GRANTED.