Customers unhappy with rate hikes by Time Warner Cable Inc. cannot sue the company for unfair competition because Federal Communications Commission regulations preempt their state law claims, a California appellate court has ruled.
The 2nd District Court of Appeal affirmed the dismissal of a class action filed by four Time Warner subscribers after the cable company raised its rates in order to carry channels that broadcast Los Angeles Dodgers and Lakers games.
(WestlawNext users: Click here for the 10 most recent stories from Westlaw Journal Entertainment Industry.)
According to the opinion, in 2011, Time Warner paid the Lakers $3 billion for the licensing rights to televise the team’s basketball games for 20 years. In 2012, it paid the Dodgers $8 billion to obtain the licensing rights to televise the team’s baseball games for 25 years.
The cost of bundling the channels that carried the games resulted in subscription rate hikes of $5 per month for carrying the Lakers games and another $4 per month when Time Warner began carrying the channel that televised the Dodgers games, the opinion says.
Plaintiffs Sherry Fischer, Stewart R. Graham, Todd Crow and Gavin McKiernan filed a class-action suit in Los Angeles County Superior Court in June 2013 against Time Warner, the Lakers and the Dodgers, claiming that the carriage arrangements violated California’s unfair-competition law, Cal. Bus. & Prof. Code § 17200.
The complaint alleged that more than 60 percent of the population did not follow sports and would not pay separately to watch Dodgers or Lakers games, and that there was no valid reason for bundling the sports stations into the enhanced basic cable tier instead of offering them as part of a sports channel package.
A majority of Time Warner subscribers were forced to pay an extra $9 per month for unwanted programming, the plaintiffs said. The two teams knew that the cable company would pass the increased costs on to unwilling subscribers and were the intended beneficiaries of the arrangements, the suit said.
Time Warner countered that federal law provided a “safe harbor” against unfair-competition claims by expressly permitting the bundling of channels.
The trial court agreed, sustaining Time Warner’s demurrer on the safe-harbor ground and finding that federal laws governing the cable television industry expressly preempt state unfair-competition laws.
The court also sustained the two teams’ demurrers because there could be no claim against them in the absence of a claim against Time Warner, according to the opinion.
The plaintiffs appealed, and the appeals court concluded that Federal Communications Commission regulations preempt the suit.
According to the appellate opinion, the Supremacy Clause of the U.S. Constitution allows Congress to enact federal laws that preempt state laws if it believes preemption is necessary.
Through the Cable Television Consumer Protection and Competition Act of 1992, 47 U.S.C. § 521, commonly referred to as the Cable Act, the FCC regulates cable television service.
A provision of the Cable Act, 47 U.S.C. § 543, prohibits cable companies from engaging in “negative option billing,” meaning that subscribers may not be charged for any service or equipment that they have not affirmatively requested, according to the opinion.
In its regulations implementing Section 543, the FCC carved out an exception, providing that negative option billing did not include the addition or deletion of a specific program or channel from the service, or the adjustment of rates as a result of such a change.
According to the appellate opinion, the regulations also provide that states and local governments may not enforce consumer protection laws that conflict with the exception so long as the proposed changes “do not constitute a fundamental change in the nature” of service.
The Court of Appeal agreed with the trial court’s conclusion that the addition of three sports channels did not fundamentally alter the nature of the existing tier, so that the plaintiffs’ action was expressly preempted by the FCC regulations.
Fischer et al. v. Time Warner Cable Inc. et al., No. B254863, 2015 WL 752430 (Cal. Ct. App., 2d Dist. Feb. 23, 2015).
(Click here for the opinion on Westlaw Next.)