Opinion ID: 2048638
Heading Depth: 3
Heading Rank: 3

Heading: The Interplay of Section 4 of the Agreement and Section 542

Text: The language of section 542 of the Communications Act is at the core of the parties' arguments. Section 542 states, in relevant part: (a) Payment under terms of franchise Subject to the limitation of subsection (b) of this section, any cable operator may be required under the terms of any franchise to pay a franchise fee. (b) Amount of fees per annum For any twelve-month period, the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system to provide cable services.     (g) `Franchise fee' defined For the purposes of this section (1) the term `franchise fee' includes any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator   , solely because of their status as such [.] (Emphases added.) 47 U.S.C. § § 542(a), (b), (g)(1) (2000). Consistent with the language in section 4.1 of the parties' agreement and section 4-280-170(A) of the Cable Ordinance, section 542 permits the imposition of a single franchise fee on a cable operator. Both section 542(b) and section 4.1 also limit this fee to 5% of the cable operator's yearly gross revenues. The Communication Act and the agreement diverge, however, on the types of gross revenues used to calculate the 5% fee ceiling. Section 542(b) of the Communications Act limits the franchise fee to 5% of the cable operator's gross revenues derived    from the operation of the cable system to provide cable services. 47 U.S.C. § 542(b) (2000). Under the FCC's March 15, 2002, ruling, however, revenue from cable modem service would not be included in the calculation of gross revenues from which the franchise fee ceiling is determined. (Emphasis added.) FCC Ruling, 17 F.C.C.R. at 4851, 2002 WL 407567, ¶ 105. Stated another way, the FCC's ruling means that the franchise fee imposed on cable operators is limited to 5% of their gross cable service revenues, but may not include gross revenues from cable modem services. That limitation is in direct conflict with the City's attempt to impose a franchise fee on cable modem service revenues under section 4.1 of the parties' agreement. As noted, the agreement's definition of the gross revenues used to calculate the franchise fee incorporates revenues from both regular subscriber service and auxiliary service, including cable modem service. The FCC's 2002 ruling excluding cable modem revenues from the calculation of gross revenues preempts the agreement's inclusion of those revenues in the calculation of the City's 5% franchise fee. See FCC Ruling, 17 F.C.C.R. at 4851, 2002 WL 407567, ¶ 105. See also Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 541, 121 S.Ct. 2404, 2414, 150 L.Ed.2d 532, 550 (2001). Section 556(c) of the Communications Act also supports our legal conclusion that the franchise fee provisions are preempted. It expressly states that any provision of law of any    franchising authority, or any provision of any franchise granted by such authority, which is inconsistent with this chapter shall be deemed to be preempted and superseded. 47 U.S.C. § 556(c) (2000). Indeed, even section 29.1 of the parties' agreement provides that [t]his Agreement shall be construed pursuant to the laws of the State of Illinois unless otherwise preempted by Federal law.  (Emphasis added.) Here, the disputed portion of the parties' agreement is preempted. Despite the differences between the language in portions of the agreement on franchise fees and the Communications Act, the City argues that section 542 does not apply to its franchise fee because that section affects fees imposed solely because an operator provides cable services. See 47 U.S.C. § 542(g)(1) (2000). The City asserts that the disputed fees are imposed because the cable operator provides cable modem services, not cable services. See FCC Ruling, 17 F.C.C.R. at 4819, 2002 WL 407567, ¶ 33. Therefore, the fees derived from cable modem service revenues are not franchise fees under the definition in section 542(g)(1) and cannot be limited by section 542(b)'s 5% ceiling on franchise fees. Accordingly, the City maintains that section 542 does not apply to the fee imposed by the agreement. Because section 542 does not apply, it cannot preempt the agreement's franchise fee provision. We reject the City's contention because it relies on a misstatement of section 542(g). The City contends section 542 and its fee cap do not apply because the fees are not imposed solely because the cable operator provides cable services. This argument ignores the plain language of the statute, our best indicator of legislative intent ( Hennings v. Chandler, 229 Ill.2d 18, 24, 322 Ill.Dec. 1, 890 N.E.2d 920 (2008)). In deciding preemption questions, the intent of Congress continues to be the ultimate touchstone of our analysis. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407, 422 (1992). Under the plain language of section 542(g), the key question is not whether cable services are provided by a cable operator, as the City contends, but whether the franchise fee is imposed    on a cable operator   , solely because of their status as such.  (Emphasis added.) 47 U.S.C. § 542(g)(1) (2000). The City's argument is unpersuasive because it is not based on the statutory language enacted by Congress. Instead, the City supports its argument that section 542 does not apply to the fee imposed on cable modem service revenues by changing the statutory language to require the relevant fee to be imposed solely because the cable operator provides cable services. There is no basis in the statute to support that claim. Plainly stated, section 542 does not read as argued by the City. Therefore, we reject the City's argument that section 542 applies only to fees imposed solely because the cable operator provides cable services as inconsistent with the actual language of section 542(g)(1). Because the City has failed to establish that the plain language of section 542(g)(1) supports its contention that the disputed fees are not franchise fees, it lacks any basis for the remainder of its argument addressing the applicability of section 542(b). The City next relies on the saving clause in section 541(d)(2) of the Communications Act to justify the franchise fee imposed in the parties' agreement. Under this section, Nothing in this subchapter shall be construed to affect the authority of any State to regulate any cable operator to the extent that such operator provides any communication service other than cable service   . (Emphasis added.) 47 U.S.C. § 541(d)(2) (2000). The City argues that this section permits it to regulate the defendants with the franchise fee because they provide a service other than cable service. Again, the City's argument lacks roots in the plain language of the statute. The City does not argue that the defendants provide any communication service, as required by the statute, just that they provide a noncable service. The City also does not argue that the cable modem services provided by the defendants are a communication service under the language of its agreement. Consequently, it provides no basis, statutory or contractual, for this court to conclude that cable modem service constitutes a communication service within the meaning of section 541(d)(2) of the parties' agreement. Indeed, the FCC's 2002 ruling classified cable modem service as an interstate information service, not as a communication service. See FCC Ruling, 17 F.C.C.R. at 4819, 2002 WL 407567, ¶ 33. We find the City's saving clause argument unpersuasive. Next, the City asserts that the federal court decisions cited by the defendants are unpersuasive and do not address its primary argument, namely, that section 542 does not apply because the fee imposed does not fall within section 542(g)(1)'s definition of a franchise fee. We have already rejected the City's unique substantive argument due to its failure to comport with the plain language of the statute. We must, however, consider whether our decision is consistent with the case law cited by the defendants. See Parish of Jefferson v. Cox Communications Louisiana, LLC, No. 02-334 (E.D.La. July 3, 2003); Time Warner Cable-Rochester v. City of Rochester, No. 03-CV-6257 (W.D.N.Y. December 12, 2003); City of Minneapolis v. Time Warner Cable, Inc., No. 05-994, 2005 WL 3036645 (D.Minn. November 10, 2005). As this court's decisions have stated, we look to nonbinding federal law as persuasive authority when construing federal statutes due to the importance of maintaining uniform interpretations. Bowman v. American River Transportation Co., 217 Ill.2d 75, 91, 298 Ill.Dec. 56, 838 N.E.2d 949 (2005). In Parish of Jefferson, the federal district court held that the FCC Ruling was reasonable and, by its terms, preempted any franchise fee on revenues from cable modem services. The court granted the defendants' partial motion to dismiss on preemption grounds because, under the FCC Ruling, revenues from cable modem services were excluded from the gross annual revenues used to calculate the 5% franchise fee ceiling in section 542(b). Parish of Jefferson v. Cox Communications Louisiana, LLC, No. 02-334. The court in Time Warner Cable-Rochester granted the cable operator's motion for summary judgment, rejecting the City of Rochester's argument that section 542(b)'s fee cap applies to franchise fees only on cable services, not on cable modem service revenues. The court noted that Rochester had not cited any supporting case law and concluded that adopting the city's position would be contrary to congressional intent. In examining congressional intent, the court looked to the relevant legislative history and the FCC's policy rationale for implementing a fee cap, namely, to avoid creating a regressive and indirect tax on cable subscribers. The court also cited Parish of Jefferson with approval. After noting that the Communications Act specifically preempts any franchise agreement provision inconsistent with federal law, the court found the agreement in that case to be preempted. Time Warner Cable-Rochester, No. 03-CV-6257. Finally, in Time Warner Cable, the franchise agreement required the cable operators to pay a franchise fee of five (5) per cent of the company's gross annual revenues, with gross annual revenues defined as all revenue derived directly or indirectly    from or in connection with the operation of the cable communications system. Time Warner Cable, No. 05-994, 2005 WL 3036645. The cable operators argued that application of this provision to revenues from cable modem services was preempted by the Communications Act. Relying on section 542(b), the City of Minneapolis argued that the Communications Act governed franchise fees on only cable services, while cable modem services were governed under a separate title. In rejecting the city's argument, the court noted that section 542(g)(1) so broadly defined a franchise fee that it included a fee of virtually any kind targeting cable providers. Time Warner Cable, No. 05-994, 2005 WL 3036645. To adopt Minneapolis' interpretation would create an end run around preemption that is precluded by the FCC Ruling that cable modem service revenues are not to be included in the assessment of franchise fees. Time Warner Cable, No. 05-994, 2005 WL 3036645. Therefore, the court granted the cable operators' motion to dismiss that count of the complaint. All the federal district courts cited in this appeal have found that, in accordance with the FCC's 2002 ruling, section 542 preempts the franchise fee provisions that include cable modem service revenues. Thus, based on our independent analysis, and consistent with the weight of federal authority, we conclude the FCC's interpretation of section 542 preempts the franchise fee provisions in the parties' agreement. See U.S. Bank National Ass'n v. Clark, 216 Ill.2d 334, 352, 297 Ill.Dec. 294, 837 N.E.2d 74 (2005). Accordingly, we need not address the defendants' alternative argument that the franchise fee violates the Internet Tax Freedom Act (47 U.S.C. § 151 note (2000)).