1 Comc ast com pri ses the f

oll owin g def enda nts: Com cast Cabl e Hol di

ngs , L.L.C., f

/k/a A T& T Br oad ba nd , L. L.C ., C omca st of

Ch i cago, Inc ., f

/k/ a C om m un i ca ti ons & C ab l e of

Ch i cago, In c. , C om ca st o f Il l i n oi s I II, Inc. , f

/k /a La Sal l e T el

ec om m un i ca ti on s, In c. , C om ca st o f Sou th FOURTH DIVISION AUGUST 23, 2007

No. 1-05- 3566 THE CITY OF CHICAGO, ) Appe al fro m the ) Ci rcu i t Cou rt of Pl ai n ti f f -A pp el l an t, ) Co o k C o un t y. ) v. ) ) COMCAS T CABLE HOLD ING S, L.L. C., f/k/a AT&T ) Broadb and, L.L .C.; COM CA ST OFCHICAG O, INC ., ) f /k/a C omm

uni cations & Cab l e of Ch i cago, In c.; ) CO MC AS T OF I LL I NO I S I I I , I NC
. , f/k /a La Sa lle ) TELECOMMUNICATIONS, INC.; COMC AST OF ) SOUTH CHICAG O, INC ., f

/k/a S outh Ch

i cago C ab l e Inc.; ) COM CA ST OFFL ORID A/I LL INOIS/ MICHIGA

N, INC ., ) f /k/a Pri m e Com m uni cations- Ch

i cago, L .L.C.; ) RCN CA BLE TV OF CHICA

GO, INC., and ) WID EOPENW

EST ILLINOIS, IN C., ) Ho no r ab le ) Pet er Flynn, Defendan t-Appellees. ) Judge Presidin g. MODIFIED OPINION JU STI CECA

MP BE LL de l i v er ed th e op i n i on of th e c our t: Plai nti f f , th e C i ty of Ch i cago (C i ty ), a ppe als f rom an orde r of the ci rcu i t cou rt of Cook County di sm

is si ng i ts action to reco ver certain cabl e fran chi se f ees f rom def endan ts, mul tiple
com pa n i es th at prov i de In ter n et a n d c ab l e s er

v i ce i n Ch i ca go, i n cl udi n g C om ca st, 1 RCN

Cab l e TV1-05-3566

Ch i cago, In c., f /k/a S outh Ch

i cago C ab l e, Inc., an

d Com cast of F l orid

a/Il l i noi s/De l awar

e, Inc., f/k/a Prim e Comm uni cations-Chicago, L.L.C.
2 RCN and WO W fil

ed a sep ar at e br ief ado pt ing t he Co mcast brief in its e nt iret y and presenting no additional

arguments. 2 of Chi cago, In c. (RC N), an d Wi deopen

wes t Ill i noi s, In c. (WOW ) (def endan ts). 2 The tria l court determi ned that the Ci

ty i s preem

pted under federal

la w from recoverin

g a cabl e fran chi se f ee f rom de f en da n ts i n th e a moun t of 5% of de f en da n ts' an n ual gr oss re v en ue s. On appe al, the C i

ty
con ten dstha t: (1 ) th e f

ran ch i se agree men ts b etw een th

e C i ty an d de f en da nts f or pa y men t of fran chi se f ees on reven

ues deri ved f rom cabl e m odem serv

ic e are val

id c ontract s under state law ; and (2) nei

ther the Federal

Comm unications A

ct nor t he f

ederal Internet Tax Freedom A

ct pre em ptsthe sta te f ran ch i se agree men t prov i si ons tha t req ui re p ay men t of f ran ch i se f ee s on
re venue der ived fro m cable mod em ser vice. Fo r t he fo llowing r eas ons , w e r ever se t he judg ment of the trial

court , vacate i

ts order , and rem

and thi s m

atter to the trial

court for further action as
nece ssar y cons iste nt wit h t he sp ecific matt er s ad dr esse d in t his op inion. BACK GROUND In t his case , w e must det er mine whet her cable c omp anies t hat pr ovid e ca ble te levision and cabl e m odem (Internet) servi

ces to custo me

rs in the Ci ty of Ch ic ago must pay

a 5% fran

chi se f ee to th e C i ty i n ord er to prov i de

each se rvi ce , a s c on

tem pl ate d b y "F ra n ch i se Re n ew al A gr eemen

t"
co nt ra ct s. B elow , w e se t for t h bot h a br ief histo ry o f the re gulat ion o f cable t elevision a nd Intern et serv i ces an d the procedu ral history relev an t to t his ca se.1-05-3566

3 I. History of C abl

e Telev is ion F ranchi se Fees A b rief hi story of the reven

ues associated with cab le

telev is ion provi

des a cl earer und erstan di ng of the g enesis of

the d i spute b etween the Ci

ty a nd th e def endan t cab l e opera

tors. Cable oper ato rs began to o ff er cable telev

isi on to cities an

d muni cipal ities in the 1960s. Som e c i ti es , acti ng asl ocal f ran ch i si ng au thor i ti es(L FAs) , b eg an

to i m pos e f ran ch i se f ee s u pon th e c ab l e op erator s. In

19 72 , the F ederal

Com m un i ca ti on s C om

m i ss i on (F CC ) i ss

ue d a n ord er to "clar ify t he r esp ect ive feder al, st at e, and lo cal re gulat or y ro les" o f the cable o per at or s and t he
m uni ci pal i tie s, an d cap ped the LF

A f ranchi se f ees . In re A men dm en t of Par t 74, Sub pa rt K , of t he Co mmiss io n's Ru les an d R eg ula t io ns R ela t ive t o Co mmun it y Ant en na T ele visio n S yst ems , Cabl e Telev is ion R eport & Order, 36 F.C.C.2d 143, par. 171 (F.C.C. February 3, 1972) ( Co mmun it y Ant en na T ele visio n S yst ems ). The FCC explained its r at ionale for capp ing the LFA franch ise f ees as foll ows: "[M]any l ocal author ities

appear t o have extract ed high franch ise fees m ore for revenue-raisi

ng than for regulator y purposes. Mo st fees are about fi

ve or si x percen t, but so me

have been

known to run as high a s 36 per cent . T he ult imate e ffect of a ny revenu e- ra ising fee i s to lev

y an in direct and regressive tax on cabl e subscrib ers." Co mmun it y Ant en na T ele visio n S yst ems , 36 F .C.C.2 d 143, a t par. 185. The FCC pla ced a 5% cap on the f

ranchi se f ees ci ties an d ot her l ocal govern

me nts were al

lowed to coll ect an d pree m pted f ranchi se a greem en t cl aus es i m posi ng f ees ab ove the 5% ca

p. Co mmun it y Ant en na T ele visio n S yst ems , 36 F.C.C.2d 143, at par. 186.1-05-3566

4

In 1985, Congress codi fi

ed the FCC' s regul ator y s chem e i n Ti tle VI of the F ederal Com m un i ca ti ons A ct of 193 4 (C om

m un i ca ti ons A ct). See

Ca bl e C om m un i ca ti ons Pol i cy A ct of 19 84 , Pu b . L . N o. 9 8- 54 9, 9 8 S tat. 27 79 (O ctob er 30 , 19 84 ) (e f

f ec ti v e 6 0 day s af ter en ac tmen t, 98 Stat. 280 6). Con

gres s am ended the Com

m uni cations A ct to pla ce a cei l i ng on f ranchi se f ees . Section 542( b) capped franchise fees b y providi ng: "For any twelv

e-month period, t he f

ranchi se f ee s p ai d by a c ab l e op era

tor wi th res pe ct to a ny ca bl e sy stem sh al l not e xc ee d f i ve pe rce nt of
su ch ca ble o pe r at o r 's g r o ss r ev en ue s d er ive d in su ch pe r io d fr o m t he o pe r at io n o f t he ca ble sy stem ." 47 U .S.C. §5 42(b ) (Supp . 1984)
. I n 1 99 6, Co ng r es s a ga in a men de d t he Co mmun ica t io ns A ct an d e nc o ur ag ed ca ble ope rator s to p rovi deservi ce s b ey ond trad i ti ona l ca bl e te l ev i si on s erv i ce s. The 5% c ap on fr an ch ise fee s r ema ine d in t ac t bu t t he 19 96 Ac t limit ed t he co llec t io n o f fr an ch ise fee s t o a " ca ble
o pe r at o r 's g r o ss r ev en ue s d er ive d * * * fr o m t he o pe r at io n o f t he ca ble sys t em t o pr o vid e c ab le servi ces." Tel ecomm

unications A

ct of 1996, Pub. L. No. 104- 104, 110 Stat . 56 (1996) (1996 Act). In 1 998, c ab l e opera tors be gan

to off er "c ab l e m

odem serv i ce" (Intern

et) to custom

ers. By up gr ad i n g th ei r s y ste m s to i n cl ud e f i b er opti c c ab l e, In

ter n et s er v er s a n d oth er eq ui pm en t, cabl e operato rs could provide hi gh speed In

ternet access that was m

uch f aster than di al -up servi ce. See In re Inqui

ry Conc erni

ng Hi gh-Speed Ac cess to the Internet Over Cabl e & Other Faci li ties , Not ic e of Inqui

ry, 15 F.C.C. R. 19287, par. 6 (September 28, 2000). In response, LF As be gan reque sti ng 5 % pay

men t on reven uesderi ve d f rom c ab l e m

odem serv i ces . On March

15, 2002, t he FC C i ssued a rul in g determi ni ng that "cabl

e m odem serv

ic e as current ly pro vided is an i

nterst ate inf

ormation service, not a cable servi ce." In re Inq ui ry Concerni ng Hi gh-Speed Ac cess to the Internet Over Cabl e & Other Fac il

ities , 17 F.C.C.R. 4798,1-05-3566

5

4819 a t par. 33 (F .C.C., M arch

15, 200 2) (F CC D ecl

aratory Rul i ng)
. The FCC

further he ld that "[g ]i ve n th at w e h ave f oun d c ab l e m ode m servi ceto be

an i nf orm ati on s erv i ce , re ve nu e f rom cable mo dem se rvice w ou ld no t be include d in t he ca lculat ion o f gro ss r evenu es fro m which the franch ise f ee ceil in g is determi

ned." FCC D eclar at or y Ruling , 17 F .C.C.R . 4851, a t par.105
. II. Franchise Renewal

Agreemen

ts In 1 985 , e ach c able o per at or defend ant in this ca se, eithe r d irect ly or t hro ugh a pr edec es sor , e n

tered i n to a 1 5- yea

r f ra n ch i se ag re em en t (A gr eemen t or A gr eemen ts) wi th th e C i ty to provide ca

ble telev is ion s ervices. The A

greeme nts gi ve each defen dant the righ

t t o extend, i nstal l , mai

ntai n, a nd ope rate a c ab l e sy

stem wi thi n a spe ci f i ed f ranchi se a rea i n the Ci ty, i nc orporat in g sections 4-280-170 (A) and (B) of the Ch ic ago Cable Ordin

ance. Ch ic ago Munici

pal Code §§ 4-280 -170(A

), (B) (a mended D ecem

ber 9, 199 2) (Ca

bl e Ordi na nc e). Sec t ion 4 -2 80- 030 (A) set s for t h t he de fini t ions o f te rms inco rp or at ed int o t he Ag reem en ts an d def i ne s the va ri ous ty pesof s ervi ces

provi ded b y cab l e opera

tors. "A uxi l i ary services" is def

in ed as: "any

comm unications s ervices i

n addi tion to 'regular subsc rib er servi

ces' i ncl udin g, but not li

mi ted to * * * data or o ther el ectronic transm

is si on servi

ces * * * i

nteractive two- way servi ces
an d a ny o t he rse r vic e u t ilizing an y fac ilit y o req uip men t o f a c ab le telev is ion s ys tem operating pursua

nt to a fran

chi se granted under thi s ch apter." Ch

i cago M uni ci pal Code §4 -280-0 30(A

) (2003 ). Pa ra gr ap h 4. 1 o f ea ch A gr ee ment pr o vide d t hat in exc han ge fo r a cc es s t o pu blic r ight s- o fway, eac h defend ant will pay a franc hise fee in t he amo unt of 5 % o f its g ro ss r evenu es d ur ing t he period of th e A gr eemen t:1-05-3566

6 "P ur su an t t o Se ct io ns 4
- 28 0- 17 0( A) an d ( B) o f t he Ca ble Ord i na nc e, th e [f ran ch i se e] s ha l l pa y to the Ci ty a f ran ch i se f eeof five per cent (5 %) of t he annu al gr os s re venue s re ceived by the [fran chisee] durin

g the period of i

ts operat ion un

der thisAgreemen t. " The Agr eement do es no t co nt ain a de fini t ion o f "annua l gro ss r evenu es, " but pr ovid es t hat "[t ]he terms * * * set f

ort h i n thi s Section 4 are pursuan t t o t he terms

* * * set forth in

Sections 4-280- 05 0 ( C) an

d 4 -2 80 -1 70 of

th e C ab l e O rdi

n an ce as i n ter pr ete d a n d a pp l i ed i n ac corda n ce wi th Se ct io n 5 42 o f t he Co mmun ica t io ns A ct . " S ec t io n 4
- 28 0- 03 0( N) de fine s " gr o ss r ev en ue s" as "a ll
rev en uede ri ve d di rectl y or i nd i rectl y f rom the ope rati on or us e of al l or pa rt of a c ab l e te l ev

i si on system *** i

ncl udin g *** revenue

from regular sub scri

ber serv ic e fee s, [and] auxi

li ary s ervice f ees ." Ch i cago M uni ci pal Code §4 -280-0 30(N) (2 001). Par agraph 4 .6 of

each A gre em en t prov i de s th at " [p] ay men t by the Gra nte e to the C i

ty of the franchise fee an

d ot her fees set forth herein sh all not be co nsidered in the nature o f a tax." On March

29, 2000, each def

endan t sign ed a Franc

hi se Ren ewal Agreem ent (Renewal Ag r ee men t ) fo ra 1 5- yea rt er m. T he t er ms o f ea ch Re ne wa l Ag r ee men t we r e s ub st an t ive ly i den tic al to the terms of

the ori gi na l Ag reem en ts. On March

15, 2002, as noted above, the FCC i ssued a decl arator y rul

in g stating that "cable modem servi

ce" is n ot the same as "cabl

e televi sion servi

ce." In March 2002, defendants in formed the City

that t hey plan ned to sto p payi

ng franch ise f ees on rev en ue f rom c ab l e m

odem serv i ce pu rsua nt to the a f

orem en tion ed F CC decl

aratory ruli ng. Begi nni ng i n A pril 2002, each def

endan t ceased pay

me nt of the 5% fran

chi se f ees on that por tion of its revenues. The Ci ty in formed defen

dants that they were required to pay f ranchi se1-05-3566

3 AT&T Broadband is one predecessor to the Comcast defendants. 7 fees on revenue

from cabl e m odem serv

ic e under the Ren

ewal Agreem ent. Defen

dants di sagreed and refused to co mpl

y wi th the City's dem

ands to p ay the f

ees. On Septem be r18 , 20 02, the

Ci ty f i l ed an ac ti on a gai ns t de f en da nts i n th e c ha nc ery di vi si on of the ci rcui t court of C ook County
. Ci ty of Ch ic ago v. AT& T Broadban d, Inc. , No. 02 CH 17 039 (C omc ast I). 3 On def endan ts' m otion , the c ase

wasrem oved to fed eral di stri ct court on O ct obe r 2 9, 200 2. Defend ant s move d t o d ismi ss t he Cit y's co mplaint cit ing sec t ion 5 42 o f the Comm uni cations Act. 47 U. S.C. § 542 (198 4). Defendants asserte d that in li ght o f the FCC decl arator y rul

in g, federal la w preempted the Ci

ty f rom coll ectin g fran chi se f ees on cab le

modem servi ce. On Septem ber 4, 200 3, the

di stri ct court gran

ted def endan ts' m otion to dis m i ss. Ci ty of Chi cago v. AT&T Broadban

d, Inc. , No. 02-C -7517 (N.D. Il l . Septem ber 4, 200 3) (Com

cast II). On Oc tob er 23 , 20 03 , the C i

ty appe al ed to th e U n i ted Sta tes Cou rt of A pp ea l s f or th e S ev en th Ci rcui t. On Septem

ber 14, 2004, the Seven

th Ci rcuit heard oral

argumen t o n thi s case. On October 1, 2004, t he Seventh Ci rcuit vaca ted the distric

t cour t o pin

ion a nd ordered the district court to reman

d the case to stat e court o n j urisdi ctional grounds. The Seven

th Ci rcuit decl in ed to consi der the m eri ts of th e ca se. City

of Chi cago v. Co mcast Cabl

e Holdin gs, L.L.C. , 384 F.3d 90 1 ( 7th Ci r. 2 00 4) (C om

ca st I II) . O n

Ja n ua ry 6, 2 00 5, t

h e d i str i ct c our t re man de d th i s c as e to th e c i rc ui t cou rt p ur suan

t to th e m an da te of Se v en th Ci rc ui t.1-05-3566

8

Aft er r ema nd , de fen da nt s a ga in mo ve d t o dis miss t he Cit y's c o mpla int o n t he sa me grounds. The trial

court granted defen

dants' m ot ions and di sm is sed the Ci

ty's compl ai nt without prejudice. The trial

cour t found as foll

ows: "I cann ot read ei ther Section 542 or the FCC rul in g ot her t han as clear ly stat ing t hat franc hise fees a re allowa ble only t o t he extent that they do not exceed f iv e percent of gross reven

ue deriv ed from cabl e servi ce, which m

eans ex cl udin g any componen

t o f that
revenue that is deri

ved f rom cabl e m odem serv

ic e. *** The Court al so pres en

tly takes no posi tion on wh ethe r,
as su ming t ha t t o be po ss ible w it hin t he rub r ic o f r efo r mat io n, it is possib le not withstandi

ng [ sic ] the In

ter n et T ax Fr ee dom A ct, which o bviou sly has a bea ring he re , a nd whe t her - - even a ssu ming th ose h ur dl es ar e ov ercom e, th e C i ty h as th e H om e R ul e A uth ori ty to get whe

re i t wan ts to go ***." On Oc t obe r 5 , 2 005 , t he t rial co ur t denied t he Cit y's subse que nt mot ion fo r r eco nsider at ion, i n ste ad , of f eri n g th e C i ty th e op por tun i ty to am en d i ts c om pl ai n t. Th e C i ty de cl i n ed to am en d i ts
co mpla int an d file d t his t imely a pp ea l. OPINION On appe al, the C i

ty con ten dsth at th e R en ew al A gr eemen

ts a reen f orc ea b l e c on tra cts unde r I lli nois law . T he Cit y arg ues t hat neithe r se ct ion 5 42( b) o f the Co mmunicatio ns Act nor t he Internet Tax Freedom Act (47 U. S.C. § 151 (200 0)) (I TFA) prohibi ts t he pay men t o f f ranchi se1-05-3566

9

fees on cabl e m odem serv

ic e pursuant to t he af

orementioned fran

chi se Agreem

ent. We i nterpret contr acts de novo
. Cw ikla v. Sh eir , 345 Il l . Ap p. 3d 23 , 801 N .E.2d 110 3 (200 3). A. Home Rule an

d Enforceable Contract s In i ti al l y , the C i ty argu es th at th e R en ew al A gr eemen

ts a rev al i d a n d en f orc ea b l e c on tra cts
an d re qui re p ay men t of 5% of de f en da nts ' a nn ual "g ros s r even

ue s." Th e C i

ty ci tesse cti on 2 9.1 of t he Re ne wa l Ag r ee men t s, en t it led "G o ve rning La w, " w hic h p r o vid es t ha t t he Ag r ee men t s " sha ll be construed pursuant to t he l aws of the State of Ill

in ois un le ss otherwis e preem

pted by federal law." Illinois co ur t s co nsist ent ly hold t hat wo rd s us ed in a c ont ra ct must be given t heir p lain and ordi na ry mean i ng. S ee, e.g. , Jo hns t o wn e C en t r e P ar t ne r ship v. Ch in , 99 Ill . 2d 284, 287-88, 458 N.E .2d 480 , 48 1 (1 983 ); Hunt v. Farm ers Insuran

ce Exch ange , 357 Il

l . Ap p. 3d 10 76 (20 05). Clear a nd u na m bi guous c ontract term

s con trol the ri ghts of the parti

es. Golden

Rul e Insuran

ce Co. v . Sc h wa rtz , 20 3 Ill. 2d 456 , 78 6 N. E. 2d 1 010 (20 03) ; Sriv astava v. Rus sell' s Barbeque, In c. , 168 Il l . Ap p. 3d 72 6, 730, 5 23 N.E.2 d 30, 33 (1988 ). Sec t ion 4 .1 of t he Re newa l Agre ement s, e nt itled "Fr anchise F ee, " pr ovid es in pe rt inent part: "Pursuant to Sections 4-280-170(A) an d (B) of the Cabl

e Ordin ance," def endan ts shal l pa y t he Cit y a franc hise fee o f 5% o f the ir "gr os s re venue s" d ur ing t he pe rio d o f op er at ion u nder t he agreem ents. Under section 4-280-170 of the Cabl e Ordin ance, "Franchi

se Fee an d Other Compensation," the reci

pie nt of a f ranchi se "sh al l pa y to the [C]ity

a fran chi se f ee of not les s than f i ve perce nt of i ts an nua l gross r ev en uesduri ng th e peri od of i ts operati on un der the f ranchi se." Ch i cago M uni ci pal Code §4 -280-1 70(A

) (am ended D ecem

ber 9, 199 2). As d et aile d a bo ve , "g r o ss r ev en ue s" is d efin ed in t he Co de as "a ll re ve nu e d er ive d d ire ct ly or indi rectly from the operation or use of all or part of a cab le

telev is ion s ys tem *** i ncl udin g ***1-05-3566

10

auxili ary servi ces." Chicago Muni

cipal Code §4- 280-030 (N) (2 001). "Auxi li ary servi ces" includes "da t a o r o t her elect ro nic tr ansmission s er vices * ** a nd any o t her ser vice ut ili zing any faci li ty or equipm

ent of a cab le

telev is ion s ys tem." Ch ic ago Munici

pal Code §4-280- 03 0( A )(2 00 1) . Th

us , the R en ew al A gr eemen

ts, v al i d c on tra cts un der Il l i n oi s l aw , c on tem pl ate that a 5% franch

is e fee is due and pay

abl e based on de fen

dants' gross reve

nues, wh ic h i ncl ude
revenue s f

rom cabl e m odem serv

ic e. The Illinois Co nst itu t ion g ra nt s t he Cit y the ho me ru le po wer s o f li cens ing, t axing and regulatory authori

ty on an y m atter pertaini

ng to its "governm

ent and af fai rs." Ill . Const. 1970,
ar t . VI I , §6 ( e)
. T he Cit y, t he r efo r e, ha s t he au t ho r it y t o en fo r ce t he Re ne wa l Ag r ee men t s a s va lid contracts un

der the con sti

tution al authority of h ome rule. T he I llino is C o nst it ut io n fu r t he rpr o vid es t ha t t he "[ p] o we r s a nd fun ct io ns o f ho me r ule
un it s s ha ll be c o nst rue d lib er ally. " I ll. C o nst . 19 70 , ar t . VI I , §6 ( m). Ca ble fr an ch ising is specifi cally addressed i

n section 11-42-11(a) o f the Il li nois Muni ci pal Code, whic

h authorizes fr an ch ise s o f "c o mmun it y ant en na t ele visio n sys t ems . " 6 5 I LC S 5 /1 1- 42
- 11 ( a) ( We st 20 00 ) ; I ll. Co nst . 1 970 , a rt . V II , § 6( e) . C able t elevision syst ems ar e a t ype o f "co mmunity ant enna tel evi sion sy

stem " an d theref ore are w i thi n a m uni ci pal i ty' s ab i l i ty to f ranchi se. Thi s court co nsi

dered a m unici pality 's h ome rule power to enter in to and en force franc hise ag re ement s in Ci ty of Ch ic ago v. Chi

cago Fi ber Optic C orp. , 287 Ill . App. 3d 566, 678 N.E.2d 6 93 (19 97). The re , t he Cit y of Chicag o ( City) ent er ed int o a franc hise ag re ement (contract) wi

th Ch i cago F i ber Optic, d/b

/a Me tropoli tan F i ber System

s of Ch i cago, In c. (MF S), a t elepho ne se rvices pr ovid er , t o r un fiber o pt ic cable fo r it s t eleco mmunicatio ns net wo rk unde r t he stre etsof Ch i cago. Th

e agre em en t req ui red MFA to pa y a 3 % an nu al f ran ch i se f eef or i t's us e of t he pu blic ways and t he Cit y's freight t unnel syst em to place t he o pt ic cables. MFS p laced t he1-05-3566

4 See Fibe rOp t ic for a di scussi on of the Digi

net cas e. Fibe rOp t ic , 287 Ill . App. 3d at 570- 77. 11 ca ble s in t he pu blic w ays an d fr eig ht t un ne ls a nd pr o vid ed t ele ph o ne se r vic e t o cu st o mer s in Chicag o. Seve n years late r, MFS r equ est ed a n amendment t o t he co nt ra ct t o e xt end t he ge ograp h i c a

re a wi th i n th e C i ty i n wh i ch i t wa s p er m i tted to us e th e pub l i c w ay

s, an d th e C i ty modifi ed the contract. Later that same y ear, MFS deci

ded to cease payi

ng the 3% ann

ual fra nch i se f ee b ased on

two cases: A

meri ca n T el ep hon e & Tel egraph C o. v . Vi

l l ag e of A rl i ng ton He i gh ts , 156 Il l . 2d 399(1993 ) ( A

rl i n gton He i gh ts ), and Digi

net, Inc . v. Western U

ni on ATS, Inc. , 958 F .2d 138 8 (7th C i r.1992 ), on remand

, 845 F . Supp. 1 234 (N .D. Il l . 1993) , vaca ted, 845 F. Su pp . 12 37 (N .D . Il

l . 19 94 ). Th es e c as es

h el d th at a ci ty h as onl y a r eg ul ator y i n terest i n i ts publ ic streets, not a proprietary i nterest. There, t he Ci

ty asse rted t hat MFS was requi

red to pay the franchise fee and so ught a dec larat ion t hat the co ntr act was enfo rce able and t hat MFS bre ach ed th e con

tract. Fibe rOp t ic , 287 Il

l . Ap p. 3d a t 569, 678 N.E.2d a

t 695. The tria l court f ound th at MF S bre ach

ed i ts contra ct wi th the Ci ty a nd th i s court af f i rmed. In so concl

udin g, this court disti

ngui shed A

rl i n gton He i gh ts and Digi

net . 4 In Arli

ngto n Heights, the AT&T ph

one compan

y wanted to lay

fi ber optic cab le s between Gle nvi ew and Rockf

ord, Ill in ois, and a cqui red a righ t-o f-way under a rai

lb ed from a rail road company . Because the rai lb ed passed over pub li

c streets, AT&T sought t he ri ght to pass un

der the streets o f s everal
comm uni ties that i ntersected the rail

bed, i ncl udin g Arl in gto n Hei ghts. The comm

uni ties ref used to all ow AT&T to lay

the c ab l e wi

thout en teri ng i nto a f ranchi se a greem en t wi th each com m uni ty. AT&T ref

used to enter into any

agreem ents and the com

mun ities ref used to issue perm

its to lay t he ca ble. AT &T s ou ght and o bt ained a n injunct ion t o p re vent fut ur e inte rfer ence wit h t he1-05-3566

12

insta llatio n of t he ca ble unde r t he st re et s, a nd t he injunct ion wa s affirmed o n app eal. In a ffi rming t his co ur t , o ur sup re me co ur t st at ed: "While municipalities have t he au t hor ity t o e nact re gulat ions relati ng to t he use of

the publ ic streets and to charge reasonable regulatory f

ees f or such use, they do not have the authority to hold the public streets host age as a means of raisi ng revenue." A rl i n gton He i gh ts , 156 Ill . 2d at 407-08, ci ting Vi l l ag e of Lom ba rd v . Il l i noi s B el l Tel ep hon e C o. , 405 Ill. 20 9, 217 -1 8, 90 N .E .2 d 10 5 ( 195 0) . T he co ur t co nclude d: "[M ]u nicipalities o nly have regulato ry powers o ver publi c street s and cannot charge t olls for their use." A

rl i n gton He i gh ts , 156 Ill . 2d at 410, 620 N. E.2d at 1045. In Fi ber Optic, t his co ur t dist inguished t he fra nchise fee char ged t her e fro m the "impermissible t oll" fo und t o ha ve bee n char ged in A rl i n gton He i gh ts , finding: "Unlike t he municipalities in AT&T , the b usi ne ss th at MF S see

ks to esta bl i sh , i.e. , it s t eleco mmunicatio ns system, origi

nates wi thin the Chi cago area. The Ci

ty i s not seeki

ng to exact a 'toll ' or garner
revenue from the use of ci

ty streets" but, rather, t he court held, MF S is "seeki ng *** speci

al privi leges f or t he use of the City

's street s." Fibe rOp t ic , 287 Il l . Ap p. 3d a t 572. Th i s court enfo rc ed t he fra nchise fee on M FA, no t ing t hat "[c ]o ur t s will gener ally not inter fere wit h co ntracts to wh

i ch parties h av e agre ed," unl

ess there wasa def

ect i n the con tract ne gotia

tin g proces s. Fibe r Op t ic , 287 Ill . App.3d at 575, citin g Dana Po int Co ndo mini

um Ass'n, Inc . v. Keyst one Service Co. Div

is ion of Cole Coi n Operated Laundry

Equipm ent, Inc. , 141 Ill

App. 3d 916, 920 (1986) . This cour t co ncl

uded: "Illi

nois publ ic poli cy f avors t he enf

orcement o f contract s." Fi ber Op t ic ., 287 Ill . App. 3d at 577. Her e, as in Fibe rOp t ic , th e c ab l e m ode m "l i ne s" at i ss uedo, i n f ac t, se rv e the re si

de nts of Ch ica go via t he pu blic r igh t - o f- wa y. T hu s, t his c as e is dis t ing uis ha ble fr o m A rl i n gton He i gh ts . T he 5% fee is ne it he ra t o ll no ra t ax , bu t a fr an ch ise fee ag r ee d t o be pa id b y de fen da nt s in a va lid1-05-3566

13

co nt ra ct in exchang e fo r t he us e o f the City's r ight -o f-wa y. As de t ailed abo ve, t he Cit y has t he authority un

der the home rul

e provis ion of

the Ill in ois Constitution to enforce i ts valid R enewal Ag reem en ts that i nc l ude the 5% f

ranchi se f ee. B. Pr eempt ion: Co mmunicatio ns Act Sec t ion 5 42( b) We no w t ur n t o t he Cit y's next ar gument , t hat t he t rial co ur t er re d in finding tha t t he Rene wal A gre em en ts, e ve n th ough va l i d a nd en f orce ab l e c ontr

ac ts, a re pree m pte d by se cti on 542(b) of th

e Com m uni cation Act. Init ially , w e no t e t hat defend ant s ar gue d pr eempt ion in t heir mo t ion t o d ismi ss t he Cit y's
co mplaint fo r failure t o s t at e a c aus e o f act ion. A sect ion 2 -6 15 mo t ion t o d ismi ss p ur sua nt t o t he Ill i noi s C odeof Ci vi l Proc ed ure (Cod e) c ha l l en ge s th e l eg al su f f i ci en cy of a c om pl ai nt b as ed on defect s app are nt o n its face. 735 ILCS 5/2 -61 5 (Wes t 2 004 ); Marshal l v . Burger Ki

ng Corp. , 222 Ill . 2d 422 (2006). Federal preem ption, however, i s a def

ect, defens e, or affi

rmati ve m atter properly al le ged i n a m ot ion to dismi

ss pursuan

t t o section 2-619 of the Code (735 ILCS 5/2-619 (We st 2004 )). Fi

de l i ty Fe dera l Sa v i n gs& Loa

n A ss ' n v . de l a Cue sta , 458 U.S . 141 , 152 , 73 L. Ed. 2d 6 64, 674 -75 , 10 2 S. Ct . 30 14, 302 2 (1 982 ); Cohe n v . McD onal

d's Corp ., 347 Ill . App. 3d 627, 63 3 (200 4). Defe ndan ts im properly rais ed the af

fi rmati ve def ense of preemption in

their s ection 2-615
m oti on to dism i ss an d th ei r m oti on wa s def ec ti v e i n th i s res pe ct. A de f en da n t' s f ai l ur e to sp ec i f i cal l y de si gnatewhether a

moti on to d

i sm i ss i s b roug ht p urs ua nt to s ec ti on 2 -61 5 or s ec ti on 2-619 i s n ot always f

atal ; h owev er, rev

ersa l i s req ui red i f prej udice re sul

ts to the nonm

ovan t. Ill in ois Graph ic s Co. v. Nickum

, 15 9 Ill. 2d 469 , 48 4 (1 994 ); Jenki ns v . Concorde Acceptance Corp. , 345 Il

l . Ap p. 3d 66 9, 674 ( 2003) . "W hen c onf ronted wi th su ch an omi ssi on, howev er,
rev i ew i ng cou rts ty pical l y rev i ew the non de si gnate d m oti on a cc ordi ng to i ts g roun ds , re que sts , or1-05-3566

14

its treat men

t by the parties and the tr ial cour t. " Nic

kum , 159 Ill . 2d at 484. Accordingl y, we
exam in e the grounds of def

endan ts' m ot ion, as wel l a s the treatment of the m ot ion i n the trial court , to deci de the propriety of the trial court 's rul

in g. See Nic

kum , 159 Ill . 2d at 484. The issue be for e t his co ur t is whet her t he fra nchise fee pr ovisio n of se ct ion 5 42 o f the Comm uni cations A ct preempts the Ci

ty's Renewal Agreem ents, authorized b

y s tate law, that require pay

me nt of f ranchi se f ees on cab le

modem servi ce off ered over a cabl

e system. Preem

ption i s i nvoked un

der the suprem

acy cl ause of the Un

ited States Constitution, whi ch m akes f ederal law "t he su pr eme Law of t he Land ." U. S. Co nst . a rt . V I, cl. 2 . As s uch, feder al st at ut es a nd regulations proper ly

enacted and pro mul

gated " 'can null

if y conf li cting state o r local actions.' " National Home Equi

ty Mortgage Ass'n v. F ace , 2 39 F .3 d 63 3, 637 (4 t h Cir. 200 1) , q uo t ing W orm v. A meri ca n C yan am i d C o. , 970 F.2d 1301, 1304-05 (4t h Ci r. 1992). Federal l

aw pre em ptssta te l aw when the l atte r " ' sta

nds a s a n ob stacl e to the acc om

pl i sh men t an d e xe cu ti on of the full purposes and objectives of Congress.' " Gi

nn v. Consol

i da ti on C oal Co. , 107 Ill . App. 3d 564, 565 (1982), quo ting Hi n es v . D av i dowi tz , 31 2 U .S. 52 , 67 , 85 L. Ed. 58 1, 5 86 -8 7, 6 1 S . C t. 399, 40 4 (194 1). Preemption however, i s a di sf avored doctr in

e ( Wi sconsi

n Publ ic Intervenor v. Mortier , 501 U.S . 59 7, 6 05, 115 L. E d. 2 d 53 2, 5 42- 43, 111 S. Ct . 24 76, 248 1-8 2 (1 991 ); Scho ltens v. Schne ide r , 1 73 I ll. 2d 3 75, 379 , 6 71 N .E .2 d 65 7 ( 199 6) ), and r equ ires t hat co ngr essio nal intent be cl ea r an d m an i f es t, as "[a ] presum ption e xi sts i n e ve ry pre em ption c as e that C ong

res s d i d n ot in tend t o supplant stat e law" (Tri -Sta te C oac h L

i ne s, I nc . v . Me tropol i tan Pier & Ex pos i ti on A uth ori ty , 315 Il l . Ap p. 3d 17 9, 194, 7 32 N.E.2 d 1137 , 1149 ( 2000) ). When co nsider ing whet her a loc al law is pr eempt ed by a fed er al law, " 'we st ar t wit h t he
assum ption that the hi storic police powers of the States were not t o be superceded b y the Federal1-05-3566

15

Act unless that was the clear and m ani fest purpo se of Congress.' " Mortier , 501 U.S. at 605, 115 L. Ed. 2d at 543, 111 S. Ct. at 2482, quot in g Rice v . San

ta Fe El ev ator Corp , 331 U.S. 218, 230, 91 L. Ed.1447, 1459, 67 S . Ct. 1146, 1152 (1947). St ate law is preem pted by federal la w when one or more of the fol

lowi ng three ci

rcumstances ex

is t: (1) when Congress h

as clearly expresse d an inte nt ion t o d o s o ( expr ess p re empt ion) ; (2 ) w hen Co ngr ess ha s clear ly i nt ende d, by legislating
com preh ensi v el y , to oc cu py an en ti ref i el d of re gul ati on (f i el d p re em pti on); an d ( 3) wh en a state l aw con f l i cts wi th f edera l l aw (c onf

l i ct preem pti on). Van Der Molen v . Wash in gto n Mutual Fi nan ce, Inc. , 359 Il

l . Ap p. 3d 81 3 (200 5). Court s historically

recogniz e that mun

ic ipa l pol ic e powers exi st to require b usi ness es that
see k to use pu

bl i c ri ghts -of-way

to enter i nto f ranchi se a greem en ts wi th m uni ci pal i tie s. MacKa

y Telegraph & Cab le Co. v. City

of Li tt le Rock , 250 U.S. 94, 99-100, 63 L . Ed. 863, 868-69, 39 S. Ct . 42 8, 4 30- 31 ( 191 9); At lan t ic & Pa cific T ele gr ap h C o . v. Cit y o f Ph ilad elp hia , 190 U.S. 160, 163 , 47 L. E d. 9 95, 999 , 23 S. Ct . 81 7, 8 18 ( 190 3); Ci ty of St. L oui s v . W es tern

Un i on Tel egraph C o. , 149 U .S. 465, 4 69-70 , 37 L. E d 810, 8 13-14 , 13 S. C t. 990, 991 -92 (18 93). Se cti on 54 2 of th e C om m un i ca ti on s A ct s pe ci f i ca l l y au th ori ze s state an d l oca l gov er n men ts to i m pose a f ranch i se f ee on ca bl e operators that provi de cab l e serv i ce. Sub section (a) provi

des: "Subj ect to the li

mi tation of subs ection (b) of this section, an

y c abl e operato r may

be requi red und er the term s of an y f ranchi se to pay

a f ranchi se f ee." 47 U.S.C . §542( a) (200 0). The Comm

uni cations Act defi

nes a "cabl

e oper ato r" as: "[ a] ny p er so n o rgr o up o f pe r so ns ( A) wh o pr o vid es ca ble
serv i ce over a c ab l e sy

stem and di rectl y or through

one or m ore aff il iates owns a sign

if ican t interest in

such cabl e sys tem, or (B) who otherwise controls or i s responsi ble for, through any

arrange-1-05-3566

16 me nt, the man

agem ent and operation of s

uch a cable

system." 47 U.S.C. § 522(5 ) (2000 ). Section 522( 6) defin

es "cable service" as

foll ows: "(A) the one-way

transm is si on to subsc

rib ers of (i

) video programm

in g, or ( ii ) ot her programm

in g servi ce, and (B) subs cr iber int er act ion, if any, which is re quir ed fo r t he select ion o r u se o f such vide o p ro gr amming or ot her pr og ra mmi ng
serv i ce." 47 U.S.C . §522( 6) (200 0). Fi nal l y , secti on 542(b ) li

m i ts the f ranch i se f ee to 5%: "F o ran y t we lve
- mo nt h p er io d, t he fr an ch ise fe es pa id by a cabl e operato r with respec

t t o any cabl e system sh

al l n ot exceed 5 percent of such

cabl e operato r's gross reven

ues deri ved i n such pe r io d fr o m t he o pe r at io n o f t he ca ble sys t em t o pr o vid e c ab le
serv i ces ." 47 U .S.C. §5 42(b ) (2000 ). The stated in

tent of sections 541 an

d 542 is to "preserve[] the regul

ator y a nd j urisdi ctional status quo with res

pect to non-cabl

e comm unication[] servi

ces." H.R. Rep. No. 98-934, at 29 (1984), 98 St at. 4666. T he 1996 A ct amen ded section 542(b) addin

g the phrase, "to provide cabl e servi ces," and thereb

y n arrowed t he scope of the ca ble fran chi se f ee base . See Pub. L.104- 104, §3 03(b ), 110 Stat.12 5 (199 6). Th e am endm en t is ex pl ai ne d i n the Hous e Conf

eren ce re port as foll ows: "S ub se ct io n ( b) ame nd s s ec t io n 6 22 ( b) o f t he Co mmun ica t io ns A ct by ins er t ing t he ph r as e ' t o pr o vid e c ab le s er vic es . ' T his
am en dm en t makescl

ea r th at the f

ran ch i se f eeprov i si on i s n ot1-05-3566

17 in tended to r each rev

enues that a cab le

operato r deriv

es f or pro viding new t eleco mmunicatio ns ser vices o ver its s yste m, but only t he operato rs['] cabl

e-related reven

ues." H.R. Conf. Rep. No. 104- 458, at 180 (1996) , Pub. L. No. 104-104, §303(b), 110 Stat . 125 (1996 ). Th e C i ty arg ue s th at if "c ab l e m ode m servi ce " is " ca

bl e s erv i ce ," th e C i ty i s l i m i ted to a col l ecti bl e f ranchi se f ee of 5% of cab l e opera

tors' gr oss revenue s. The Ci

ty p oin ts out, howev

er, that sect ion 542(b) nei

ther clearly

nor mani festly li mi ts muni cipal autho rity to co ll

ect franchi se fees o n t he pr ovisio n of a nything o t her t han cable servi ces and tha

t, in actual

ity, section 541 expressly pr

eserves tha t au thor i ty . Th us , th e C i ty con cl ude s, th ere i s n ei the r ex pre ss pre em ption nor is the re confl ict preemption. W

ithout speci fi

c, statut ory i

ntent to the contrary, the Ci ty argues th at i t i s n ot preem pte d b y f ederal l aw f rom col l ec ti n g f ee s on ca b l e m odem se rvi ce s. The C i

ty
as serts th at the A gre em en ts re f l ec t de f en da nts ' c ontr ac tua l obl i ga ti on to p ay

f ran ch i se f ee s on
no nc ab le s er vic es pu r su an t t o t he Cit y's h o me r ule au t ho r it y as su pp leme nt ed by t he I llino is Municipa l Cod e and t he Ca ble Or dinance . T he Cit y urg es t hat t he silence o f sect ion 5 42( b) be
con str ue d a s a sa v i n gscl au se wh i ch ca n n ot b e deemed

a " cl ea r s tate men t of con gr es si on al i n ten t" that gi ve s wa y to preem pti on. See , e.g. , City o f Dallas v. Fede ra l Communicat ions C omm'n , 165 F.3 d 34 1, 347 -4 9 ( 5t h Cir. 199 9) (T eleco mmunicatio ns Act of 1 996 co nt ains no clear st at ement providi ng f or preemption of l

ocal f ranchi si ng authority

over providers of

open vi deo system
serv i ces ). De fen da nt s r es po nd t ha t t he fed er al la w p r o hibit s p ayme nt o f fr an ch ise fee s o n c ab le
m ode m servi cei n th at the F CCcon

cl us i ve l y de term i ne d that c ab l e m

ode m servi cedoe s n

ot constitute a "cabl

e servi ce" (FCC Order, pars. 60 through 68 (March 15, 2002)), and that1-05-3566

18

Congress did not intend for the revenue derived from cab le m odem service to enter t he f ranchi se fe e ba se: "Cable mo dem se rvice is a n inter st at e infor matio n ser vice wit hin the

scope of our juri sdi ction over i nterstate and foreign

comm unications. We

recogniz e, however, that it is provided over the f

acili ties of c able syst ems t hat oc cup y public right s-o f-wa y in l oc al co mmuni ti es . In ord er to f ac i l i tate our n ati on al pol i cy goa l s, we se ek to cl ari f y th e a uth ori ty of Sta te a n d l oca l gov er n men ts w i th re sp ec t to cab l e m odem serv i ce. * * * Giv en that we hav

e found ca

ble m odem serv

ic e to be an i nf orm ati on s erv i ce , re ve nu e f rom ca bl e m ode m servi cewoul d n

ot be include d in t he ca lculat ion o f gro ss r evenu es fro m which the fran chi se f ee ceili ng i s determi

ned." FC C Order, at 4848 par. 96, 4851 p ar. 105 (Marc

h 15 , 2002)
. Defe ndan ts insi st that although section 542(a) provi des that a "cabl

e operato r may

be requi red unde r t he t er ms of any fra nchise t o p ay a fra nchise fee ," any suc h obligat ion is "[ s]u bject t o t he lim itat ion o f subse ct ion ( b)" ( 47 U .S .C . § 542 (a ) ( 200 0) ). Defend ant s ass er t t hat sec t ion 5 42( b) limit s t he impo sit io n o f fr an ch ise fee s t o 5% o f ca ble se r vic e r ev en ue an d d o es no t pe r mit fran chi se f ees bey ond 5%, inc ludi

ng f ees on cab le

modem servi ce reven ues. At the sam

e tim e,1-05-3566

5 Foll owing oral

argumen ts in this ma tt er, defen

dants f il ed a m ot ion to cite addi

tional authority , to wit, a r

eport an d order issued b

y the F CC on

Marc h 5, 2 007, In

re Im plem en tation of Se ct io n 6 21 ( a) ( 1) o f t he Ca ble Co mmun ica t io ns P o licy Ac t o f 19 84 as ame nd ed by t he Ca ble Telev is ion C onsum

er Prot ection an

d Competi

tion Act o f 1992, Report and Order and Further No t ice o f Pro po sed Rulemak ing , MB Docket No . 05-311, FCC 06-180, at par. 1 (March 5, 2007) (Secti on 621 Order

). Defend ant s ar gue d t hat t he Se ct ion 6 21 O rd er pr ovid es a ru ling "on t he central i ssue of this case." In res

ponse to defendan

ts' m ot ion, the Ci

ty correctly

observes t hat t he Sec ti on 6 21 Orde

r i s n ot rel evan t to the i ss ue s i n th e p res en t ca se . The p urp ose

of the Sec ti on 621 Order is to "provide gui dance to im

ple me nt Section 621(a)(1) of the Comm unications A

ct [ 47 U. S. C. § 5 41 ( a) ( 1) ( 20 00 ) ] * * * w hic h p r o hibit s fr an ch ising au t ho r it ies fr o m un r ea so na bly refusi ng to award competitiv

e fran chi ses f or t he provi si on of cabl

e servi ce." Section 621 Order at 2, par. 1. T he Secti on 621 Order establis hed that the fran

chi se-fe e authority av

ai la ble under
se ct io ns 5 42 ( a) an d ( b) pr o vid es no ba sis t o co llec t fr an ch ise fee s " o n r ev en ue s fr o m no n- ca ble
servi ce s." Sec

ti on 6 21 Orde

r, 4 6, p ar. 98. Be ca

us e the R en ew al A gre em en ts do not rel

y on f ed era l l aw to i m pos e " ca bl e s erv i cef ee s" on c ab l e m

ode m servi ce , th e Se cti

on 6 21 Orde

r i s n ot relev an t to t his ca se. 19 de fen da nt s r ec o gn ize t ha t se ct io n 6 36 ( c) o f t he Ac t ( 47 U. S. C. §5 56 ( c) ( 20 00 ) ) ex pr es sly preempts confli

cting state and local laws and franch ise provi sions. 5 Defendan ts further ar gue that the City' s position that sect ion 542(b) caps only those
rev en ue s deri ve d f rom ca bl e s erv i ce s, l ea vi ng In tern et s erv i ce"f ai r ga me" f or th e i m pos i ti on of franc hise fees, is in cont ra vent ion o f co ngr essio nal intent . D efenda nt s po int t o t he und er lyi ng pol i cy of the 199 6 A ct to encoura ge ca bl e opera tors to provide i

nn ovati ve non cab l e se rvi ces .1-05-3566

20

Defe ndan ts cite to t he Un

ited States House of Representativ es conf erence report, which

states that Congress adopted t he am endm ent to clarif

y tha t t he "f ranchi se f ee provis ion i

s not in tended to reach revenues that a cab le operato r deriv

es f or pro vi din g new tel ecomm

unications s ervices over its sy

stem," an d that fees sh

ould be im posed on "only

the operato rs['] cabl

e-related
revenue s." H.R. Conf. Rep. 104-458 at 180 (1996), Pub. L. No. 104-104, §303 (b), 110 stat . 125 (1996 ). I n it s D ec lar at o ry Ru ling , t he FC C s t at ed : " [ R] ev en ue fr o m ca ble mo de m se r vic e w o uld
no t be inc lud ed in t he ca lcu lat io n o f gr o ss r ev en ue s fr o m wh ich t he fr an ch ise fee ce iling is deter mi ned." FCC D eclar at or y Ruling , 17 F. C. C. R. 48 51 , at pa r10 5. T hu s, wh ile T he Cit y is limit ed t o co llec t ing fr an ch ise fee s in t he amo un t o f 5% ba se d o n d efe nd an t s' g r o ss ca ble tel ev i si on s erv i cerev en ue s b y i ts ow n C ab l e O rdi

na nc e, th e F CChas s et f

orth no s tate d l i m i t on t he fra nchise fee t he Cit y can co llect o n re venue s ge ner at ed fr om ca ble mode m service . T he legislat ive histo ry o f the Co mmunicatio ns Act , includ ing t he 19 96 Ac t , r eflect s no spe cific intent to preempt f

ranchi se f ees on nonca

ble servi ces. However, the record here shows that because (1) the Cabl e Ordin ance cl early covers "Aux

il ia ry Serv ic es," (2) the Cabl

e Ordin ance is i ncorporat ed int o t he Ag r ee men t s, an d ( 3) t he Ag r ee men t s c ap fee s a t 5% , pa yment o f 5% fr an ch ise fee s o n a ll
ser vices p ro vided w as bo t h co nt emplat ed by t he pa rt ies and acc ept ed by t he pa rt ies up on e nt er ing i nto the A greem en t. Defend ant s' fur t her re liance o n t he r ulings o f four feder al dist rict co ur t s, ho lding t hat t he "p l ai n l an gua ge " of se cti on 5 42( b)pre cl ude s m un i ci pal i ti esf rom i m pos i ng f ran ch i se f ee s on
revenue deriv ed from cabl e m odem serv

ic e, is un avai li ng. See Par

i sh of Je f f ers on v . Cox Comm uni cations Louisi ana, L.L.C. , No . 02 -33 44 ( E. D. L a. J uly 3, 200 3); City o f Chicago v. AT& T Broadb and, Inc., , No. 02-C -7517 (N.D. Il l . Septem ber 4, 200 3), vacated on other1-05-3566

6 The opin ion i n the Tim e Warn er Cabl e-Rochestercase, whi

ch i s m erely a short or der accompan ie d by transcript of oral

proceedin

gs, accurately

descri bes the case law on thi s i ssue as "sp arse ," i n that the a

bove-des cri

be d "opi ni ons" are the onl

y authority addre ssi ng th i s su bj ect. Tim e Warn er Cabl e-Rochester , s l i

p op . a t __

__ . Th i s dea rth of au th ori ty i s e v i den ce d b

y th e f ac t, noted h erei n, that the def

endan ts ci te the predec ess or opin

i on i ssued i

n the pres en

t case , Chi

cago v. AT&T , N o. 0 2- C- 75 17 (Se ptem b er 4, 2 00 3) (C om

ca st I ), a s a

uth ori ty , de sp i te th e f ac t th at i t
wa s ov er tur n ed b y th e S ev en th Ci rc ui t ( Chicago v. Co mcast , 384 F.3d 901 (7th Cir. 2004) (Com cast III)). 21 grou nds sub nom

. City

of Chicago v. Co mcast Cabl e Holdin gs, L.L.C. , 384 F.3d 901 (7 th Ci r. 2004)(Com

cast III) ; Tim

e Warn er Cabl e-Rochester v. Ci

ty of Rochester , No. 03-CV-6257 (W.D . N. Y. D ecember 1 2, 2 003 ); Ci ty of Mi nne apolis v. Ti

me Warne r Cabl e, Inc. , No. 05- CV994 (A DM /A JB ) (D . Mi

nn . Nov em be r 10 , 20 05)(ap

pe al pe nd i ng i n U ni ted State s C ourt of Ap peal s f or the Ei ghth Ci rcui t (No. 05-442 4)). Th

ree c ase s f

rom outs i de our j uri sdi

cti on are nei ther persuasi

ve n or mandatory authori

ty, as thi s court is not bound by the holdi ngs of foreign courts. People ex rel . C ity o f Chicago v. H ollins , 368 Ill . App. 3d 934, 944 (2006), citin g Pe o ple v. Chan dle r , 88 Il l . Ap p. 3d 64 4, 653 ( 1980)
. 6 Neverthel ess, The Tim

e Warn er Cabl e-Rochester

co ur t obs er ved in dicta that "the parties [i n th at c as e] ag

re ed th at sh o u ld

th er e b e a ch a n g e i n f

ed er a l o r s ta t e l a w t hat wo uld have t he eff ect of nul li fy in g a specifi

c term or conditi on of the agreem ent; i t shall take ef

fect an d the parties agree d to comp l

y wi th su ch changes ." (Em

phasi s ad ded.) Tim

e Warn er Cabl e-Rochester , No. 03-CV-6257, sli

p op. at 42. The Tim

e Warn er Cabl e-Rochester

co ur t apt ly calls at t ent ion t o t he
co nfusion o ver t he inte rp re t at ion o f the FCC D eclar at or y Ruling in conjunc t ion wit h t he1-05-3566

22

Com m un i ca ti on s A ct; n o su ch cl ea r c h an ge i n f ederal l aw h as yet to o ccur . Al

th oug h de f en da n ts argue that the Ni nth Ci rcui t Court of A

ppea l s af f i rmed th e statem

en t in the F CC' s De claratory Rulin g that "cable broadban

d servi ce" (cabl e m odem serv

ic e) is not a cabl e servi

ce ( Brand X Internet Service v. F.C.C. , 345 F .3d 112 0, 1132(9th C i r. 2003 )), Brand X

did no t re so lve the mat t er o f ap plic ab ilit y o f fr an ch ise fee s t o ca ble mo de m se r vic e. T he Un it ed St at es Su pr eme Court deni

ed certiorari on t he issue of t he meaning o f the FCC D eclar at or y Ruling. T hus, no court ruled on the i

nterplay between the F CC Decl

arator y R uli ng an d the Comm

unications A

ct and en tered a defi

ni tive order resolv

in g the applic abi

li ty of f ranchi se f ees to cable

modem servi ce. Thi s court do es not stand in the shoes of our f

ederal governm ent and can

not amen d a federal act. We are, however, i

n a posi tion to apply

our o wn state law to a val id c ontract ual agr eement . I n do ing so , w e co nclude t hat t he Agr eement s ar e valid co nt ra ct s und er st at e law a nd that t he A greeme nts are not preempted by

federal la w. Even i

f we ove rlook the fact that defen dants m is characterized thei

r motion to dism

is s, the trial

court erred in

fi ndi ng that federal law pr ee mpt s I llino is a nd mun icip al la w. We co nc lud e t ha t de fen da nt s a r e in vio lat io n o f t he ir
co nt r ac t ua l t er ms u nd er t he Re ne wa l Ag r ee men t s by n o np ayme nt o f fr an ch ise fee s o n c ab le
m odem serv i ce s i nc e A pril 2002. C. In

ter n et T ax Fr ee dom A ct. The City fur t her co nt ends t hat enfo rc ement of t he Agr eement s do es no t violat e t he In ter n et T ax Fr ee dom A ct ( ITF A ) (4 7 U .S. C. §1 51 (2 00 0) ). Th e I FTA ori gi n al l y ex pi re d b y i ts own terms on Novem

ber 1, 2003 (see Pub. L. No. 105-288, §1101 (a)), but the IFTA was
am en de d to exten

d th e m ora tori um to Nov em b er 1, 2 00 7 ( 47 U. S.C . §1 51 (Su pp . 20 04 )). In

i ts ruli ng, the t rial

cour t indicated t hat im

position of franch

ise f ees may v i ol ate th e I TF A . Th

e C i ty arg ues t hat enfor cement of franchise fee p ro visi ons o f the Agr eement do es no t vio late t he IT FA1-05-3566

23

be ca us e ( 1) t he fr an ch ise fee s a r e n o t t ax es ; a nd ( 2) ev en if t he fr an ch ise fee s a r e a t ax , t he y fall withi n the statute's grandf

ather cla use. The ITFA provides as follows:

"N o State or pol i ti cal su bd i vi si on th ere of may i m pos e a ny of the fol lowi ng taxes duri

ng the period begi

nni ng Novem

ber 1, 2003, and en din g Novem ber 1, 2007: (1) T axes on Internet access. (2) Mul ti ple or d i scri m i na tory taxeson el ectronic com

me rce." 47 U.S.C. §151 (Supp. 2004)
. Th e IT FA de f i ne s " tax " a s " an

y ch arg e i m pos ed by an y govern men tal en ti ty f or th e p urp ose

of generatin g revenue s f

or go vernm

ental purposes, and i s not a fee i mposed f or a specif

ic priv il ege, service, or benefi

t co nf erred. " 47 U.S.C . §151 ( Supp. 2 004). Th us un der the pl ai n statutory l an gua ge , th e m orator i um appl i es onl y to tax esan

d n ot f ee s cha rge d i n c onn ec ti on w i th rec ei pt of a b en ef i t. Th e C i ty arg ue s th at the m orator i um on " ne wl y i m pos ed tax on I nte rnet a cc es s" doe s n

ot appl y to the f ranch i se f ees i n the Agreem

en t bec aus e the

f ees are n ot a tax b ut, rathe r, a contractual compensation f or t he pri vi le ge of usi

ng the pub li

c ways to o perate a franch is e. See, e.g. , Fibe rOp t ic , 28 7 I ll. A pp . 3d at 57 3- 74
. Fu r t he r , t he I T FA d efin it io n o f t ax sp ec ifica lly excl udes: "any

fran chi se f ee or sim il ar fee i mposed b y a Stat e or local franc hising aut hor ity, p ur sua nt t o s ect ion 6 22 o r 6 53 o f the Comm unications A

ct of 1934 (47 U.S.C. 542, 573), or any ot her1-05-3566

24 fee r elat ed t o o bligat ions [ of] t eleco mmunicatio ns ca rr iers u nder t he Comm unications A

ct of 1934 (47 U.S.C. 151 et seq .). " 47 U.S. C. (Supp. 2 004). In the al ternative, the Ci

ty argues that the f

ranchi se f ees f al l wi thin the ITFA' s grandf

ather cl ause. The m

orat orium on taxin g Internet access ex

cl uded taxes that were "general ly im posed
an d a ct ua lly enfo r ce d p r io rt o Oc t o be r1, 19 98
. " 4 7 U
. S. C. A. §1 51 ( We st Su pp . 20 06 )
. T his excl usi on provided: "Section 1101 ( a) do es not app ly to a tax on Int ernet access th at w as gen eral l y i m pos ed an d actual l y en f orc ed pri or to Octobe r 1, 199 8, i f

, be f ore that da

te - - (A) t he t ax wa s au t hor ized by st at ut e; and (B) Ei ther - - (i) a provi der of Internet access s ervices had a reasonabl e oppor tunity

to know, by

vi rtue o f a rul

e or o ther public pr oc lamatio n made by t he ap pr op riat e ad mini st ra t ive agency of the State o r poli

tical subdi vi si on thereof, that such agen cy has i nterpreted and appli

ed such tax to Internet
ac ce ss servi ce s; or ( ii) a St at e o rpo lit ica l su bd ivisio n t he r eo f ge ne r ally coll ected such tax on ch

arges f or Internet access. 47 U.S.C.A . §1104 (a)(1) (W est Sup p. 2006 ). The C i ty as serts that the f

ranch i se f ees i n the Agree ment f i t withi n this excepti on as the

y are: (1 ) a ut hor ized bo t h by the C able Or dinance and t he I lli nois M unicipal Co de; ( 2) impose d pu rsu ant1-05-3566

25

to franch ise agreem

ents that becam

e eff ective on March 29, 1985 ( the Agreement at issue i s a
ren ew al of tha t Ag ree men t), w el l be f ore O ctob er 1 , 19 98;an

d (3 ) de f en da nts were on noti cepri or to October 1, 1998, t hat the Ci ty's fran chi se f ees would appl

y to any Internet access reve

nues defendan ts derived thro ugh the oper ation of their cable sys tems. Defe ndan ts respond "[a]lthough i

t is true that franch

is e fee s are general

ly not considered taxes," and adm

it that the ITFA ex

pressl y e xem pts "fee[s] i

mposed f or a specif

ic priv il ege, servi ce, or benef

it conf erred" (see 47 U.S.C.A. §1104(a)(1) (West Supp. 2006)) , they
ne ve r t he les s a r gu e t ha t t ho se ex emp t io ns d o no t ap ply t o t his c as e b ec au se t he y we r e r eje ct ed in Com ca st I II th e p re de ce ss or c as e to th

e p re se n t ca se th at w as di sm i ss ed on appe al to th e S ev

en th Ci rcuit and h

olds n o precedential

val ue. Al ternativel y, def endan ts retur n to t hei

r argumen

t t hat A rl i n gton He i gh ts ap plie s be ca us e t he Cit y is a t t emp t ing t o "e xa ct r en t " fo rt he us e o f t he pu blic ri ght-of -way. A rl i n gton He i gh ts , 156 Il l . 2d at 44 1 (Fr

eem an , J., sp eci

al l y conc urri ng)
. De f en da n ts' argu men ts a rewi th out m eri t. A s n oted ab ov e, Com

ca st I II h as n o v al ue to the d i sposi tion of th i s m atter as i t was overturned. A

rl i n gton He i gh ts is dis tingui shab le as that
ca se con si dere d n on l oca l se rvi ce s. W e f

i n d th at th e f ra n ch i se f ee con tem pl ate d i n th e A gr eemen ts is not a t ax pr ohibit ed by t he I TFA. Fo r the r ea son

s state d h er ei n , w e th eref orere v er se

th e j udgm

en t of th e tr i al cou rt, v ac ate i ts o rd er , a

n d r em an d th i s m atte r to th e tr i al cou rt f or f ur th er ac ti on as n ec es sa ry con siste n t wi th the s peci f i c m atters ad dres sed i n th i s opi ni on. Rev erse d an d rem anded. QUINN , P.J., an

d NEVIL LE, J., c oncu

r.