# Appendix — Northwestern Indiana Telephone Co. v. Federal Communications Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0369%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1990 - **Citation:** 493 U.S. 1035 ## Text | — NS VOU, Ud, sit. OL | SEP 25 19¢9 JOSEPH F. SPANIOL yp IN THE Suprene Court of the United States OCTOBER TERM, 1989 NORTHWESTERN INDIANA TELEPHONE Co., INC. and NORTHWEST INDIANA CATV, INC., . Petitioners, FEDERAL COMMUNICATIONS COMMISSION and the UNITED STATES OF AMERICA, Respondents. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT RUSSELL D. LUKAS Counsel of Record GEORGE L. LYON, JR. KIRBY H. PoRTER LEE BURDICK LUKAS, MCGOWAN, NACE & GUTIERREZ, CHARTERED 1819 H Street, N.W. Seventh Floor Washington, D.C. 20006 (202) 857-3500 Counsel for Petitioners se oon — WILSON - Eres PrintTinG Co., Inc. - 789-0086 - WasHincron, D.C. 20001 TABLE OF CONTENTS Page Appendix A Court of Appeals decision denying petition for re- Ne i I assent recenienercersterremenaiie la Court of Appeals order denying petition for re- es) ge Py AD, l4a Court of Appeals order denying petition for re- hearing en banc dated June 27, 1989 _.................. 15a Court of Appeals judgment denying petition for review dated April 11, 1989 ...............000000000000... 16a Appendix B Federal Communications Commission order reaf- firming prior Commission order on remand dated Se I iol, oe ch vocvakinneiinaimaiapocbaniauaasen chieniiseiaet 18a Appendix C Court of Appeals decision ordering remand dated FB pce IE ete ties Oe ARIA Oe ONDER SUB MCE AUR ote 32a Court of Appeals judgment ordering remand dated I Fe I sccechaestene re skaceinntacks coped ene ces onihe paciedaeats 44a Court of Appeals order granting clarification pT BE ey ae ean 46a Appendix D Federal Communications Commission order im- posing forfeiture and granting stay pendente lite CO SB RS Ra Sa Ark ee AD 48a Appendix E Federal Communications Commission order deny- ing reconsideration of memorandum opinion and order and notice of liability dated August 23, SRR ean Sh BRET SIE tA EGP AER Se ewes 78a il Appendix F Federal Communications Commission memoran- dum opinion and order and notice of apparent liability for forfeiture dated March 18, 1985........ Appendix G Statutory provisions .......................................... Appendix H Oral argument of Daniel M. Armstrong on behalf of the Federal Communications Commission and United States of America before the Court of Ap- peals dated March 6, 1989 Appendix I Federal Communications Commission memoran- dum opinion and order granting motion to dis- miss cellular radio applications dated July 28, BAI onenictsseiccasntcinsnoehsscaccsanscieehagl eee Appendix J Federal Communications Commission notice of dismissal of application and motion to dismiss application dated July 7, 1989 ss Appendix K Defendants’ reply to supplement to plaintiffs’ memorandum of points and authorities dated August 11, 1908 .........00..... Page 103a 128a 133a 146a 148a la APPENDIX A UNITED STATES COURT OF APPEALS DISTRICT OF COLUMBIA CIRCUIT No. 88-1521 NORTHWESTERN INDIANA TELEPHONE COMPANY, INC. and NORTHWEST INDIANA CATYV, INC., Petitioners, V. FEDERAL COMMUNICATION COMMISSION and UNITED STATES OF AMERICA, Respondents, U.S. TELEPHONE ASSOCIATION, BELL ATLANTIC TELE- PHONE COMPANY, NATIONAL CABLE TELEVISION ASSO- CIATION, INC., U.S. CABLE TELEVISION ASSOCIATION, Inc., U.S. CABLE OF NORTHERN INDIANA, Intervenors. Argued March 6, 1989 Decided April 11, 1989 Petition for Review of an Order of the Federal Communications Commission Russell D. Lukas, with whom David L. Nace, Wash- ington, D.C., was on the brief, for petitioners. 2a - John Thorne, Washington, D.C., for petitioner local phone company, and also entered an appearance for inter- venor Bell Atlantic Telephone Co. Daniel M. Armstrong, Associate Gen. Counsel, F.C.C., with whom Diane S. Killory, Gen. Counsel, F.C.C., Greg- ory M. Christopher, Counsel, F.C.C., Catherine G. O’Sul- livan and Marion Jetton, Attys., Dept. of Justice, Wash- ington, D.C., were on the brief, for respondents. H. Bartow Farr, III, with whom Brenda L. Fox, Michael S. Schooler, David L. Nicoll and Charles H. Helein, Washington, D.C., were on the brief, for inter- venors. Martin T. McCue and William Malone, Washington, D.C., entered appearances for intervenor U.S. Telephone Ass’n. James R. Young and Robert A. Levetown, Washington, D.C., entered appearances, for intervenor Bell Atlantic Telephone Co. J. Christopher Redding, Washington, D.C., also entered an appearance, for intervenor U.S. Cable of Northern Indiana. Before WALD, Chief Judge, and ROBINSON, and STARR, Circuit Judges. Opinion for the Court filed by Circuit Judge STARR. STARR, Circuit Judge: This case is before us a second time. Previously, the court remanded the case to the Federal Communications Commission for clarification of the definitions, under the FCC’s cross-ownership regulations, of “affiliate” and “carrier-user” relationships. between telephone and cable television companies. Northwestern Indiana Telephone Co. v. FCC, 824 F.2d 1205 (D.C.Cir.1987) (“NITCO I’). The FCC having now responded adequately to the con- 3a cerns that prompted remand, we deny the petition for review. » I To recap briefly the pertinent facts: In March 1985, the FCC determined that Northwestern Indiana Tele- phone Company (“NITCO”’) had violated the FCC’s cross- ownership rules by virtue of its direct and indirect con- nections with Northwest Indiana CATV, Inc. (“North- west”). Comark Cable Fund III, 100 FCC2d 1244, recon. denied. 103 FCC2d 600 (1985). The FCC’s cross- ownership rules prohibit a telephone company from pro- viding “cable television service to the viewing public in its telephone area, either directly, or indirectly through an affiliate.’ 47 C.F.R. § 63.54(a) (1988). The regula- tions also prohibit a telephone company from providing “channels of communications or pole line conduit space” to affiliated cable operators, 47 C.F.R. § 63.54(b) (1988). The pivotal term “affiliate” is broadly defined to include “any financial or business relationship whatsoever by contract or otherwise, directly or indirectly between the carrier and the customer, excent only the carrier-user relationship.” 47 C.F.R. § 63.54 Note 1(a) (1988). When this case made its first apnearance here, the FCC had concluded that each of seven relationships be- tween NITCO (through its president Robert Mussman) and Northwest (through Robert Mussman’s son, Rhys Mussman, the president and founder of Northwest) “was and continues to be prohibited by Section 63.54 of our Rules.” J.A. at 1598. These relationships were: (1) Robert Mussman’s guarantee of bank loans to Northwest; (2) Robert Mussman’s guarantee of an indemnity agree- ment between Rhys Mussman ard the Town of Hebron, which received cable service from Northwest; (3) NITCO’s payment to Rhys Mussman of consulting fees in excess of Rhvs’ former salary as Executive Vice President of NITCO; (4) Robert Mussman’s lease of office space to Northwest; (5) Robert Mussman’s sublease 4a of property to Northwest for “head-end” signal-receiving facilities; (6) NITCO’s construction and maintenance of signal distribution facilities for Northwest; and (7) NITCO’s lease of pole space to Northwest. J.A. at 1598- 99. Upon review, we discerned two problems with the Commission’s order. First, we questioned whether, by stating that each of the foregoing transactions (or rela- tionships) was prohibited, the Commission meant to say that affiliate status could be achieved merely by a tele- phone company’s leasing pole space or by its constructing distribution channels for a cable company. We noted that under such an approach telephone companies might be prohibited (under section 63.54(b)) from ever providing pole space or distribution channels to cable companies. This result seemed contrary to section 63.57 of the regu- lations, which provides that the Commission may permit telephone companies to furnish pole space or distribution capacity to non-affiliated cable companies. NIJTCO J, 824 F.2d at 1209; see also General Tel. Co. of California v. FCC, 413 F.2d 390, 395-401 (D.C.Cir.1969) (FCC may require telephone companies to obtain a certificate of public convenience and necessity before constructing cable distribution facilities). Second, we recognized that the Commission had, on two prior occasions, permitted telephone companies to con- struct distribution channels for cable operators. NIJTCO I, 824 F.2d at 1208-10, citing,, The Ohio Bell Tel. Co., 100 FCC Red 942 (1986) (“Ohio Bell’); The Chesapeake & Potomac Tel. Co., 57 Red.Reg.2d 1003 (1985) (“C & P”). In each of these cases, the Commission had relied on the “carrier-user” exception to the cross-ownership regula- tions’ definition of “affiliate.” In its initial orders, how- ever, the FCC did not fully explain why this exception was not also applicable to NITCO and Northwest. We thus directed the Commission, to elucidate the essential 5a elements of “affiliate” status and the “carrier-user” ex- ception. On remand, the FCC explained that it had not intended to treat the leasing of pole space as an indicator of af- filiation. J.A. at 2016. Instead, the Commission clarified that “the lease of pole space was a prohibited relation- ship solely because of our finding of affiliation for other reasons.” Jd. The FCC then reaffirmed its conclusion that NITCO and Northwest were aifiliated, relying on the indicia of affiliation in its previous order (except, of course, the lease of pole space) and five other NITCO- Northwest linkages." Turning to the alleged inconsistency between the treat- ment afforded NITCO and that afforded the telephone companies in Ohio Bell and C & P, the Commission explained: The carrier-user relationship . . . contemplates trans- actions that entail a general offer to provide on an indiscriminate basis substantially the same service or services to any and all similarly-situated com- panies or members of the public. ... It is NITCO’s failure to deal with Northwest on common carrier terms that causes us to conclude that there was no carrier-user relationship. J.A. at 2016. In contrast, the telephone companies in Ohio Bell and C & P qualified for carrier-user status 1 The five indicators of affiliation highlighted by the Commission on remand were: (1) Rhys Mussman’s serving as NITCO’s Execu- tive Vice-President at the same time that he operated Nor‘thwest as an individual proprietorship; (2) Rhys Mussman’s responsibil- ity, while serving as NITCO’s Executive Vice-President, for nego- tiating pole attachment agreements with competing cable compa- nies; (3) the fact that all contractual agreements between NITCO and Northwest were originally oral; (4) the fact that the consult- ing agreement between NITCO and Rhys Mussman was oral; and (5) Rhys Mussman’s representations to city franchising officials that he was Executive Vice-President of NITCO and his father was Secretary-Treasurer of Northwest. J.A. at 2016. 6a because, incident to their certificates of public conven- ience and necessity, they were obligated to offer cable facilities on a common-carrier basis. J.A. at 2016, 2018 n. 28. II Petitioners’ primary contention is that the FCC has, notwithstanding its effort to do so, failed adequately to distinguish the present situation from those in Ohio Bell and C & P. In particular, they assert that the telephone companies in those two cases also extended credit, en- tered into consulting agreements or leased property to cable operators. But these similarities are, upon analysis, beside the point. As we have seen, the FCC did not approve the cable facilities in Ohio Bell and C&P on the ground that no financial or business relationship existed between the telephone and cable companies. In- stead, the Commission in those two cases relied on the telephone companies’ willingness to serve cable companies on a common-carrier basis. As the FCC emphasized on remand, NITCO, unlike the telephone companies in Ohio Bell and C & P, failed to avoid the legal consequences of affiliation by offering to serve cable operators on that open-ended basis. Relatedly, petitioners contend that the FCC failed to provide adequate notice that a telephone company could escape the adverse consequences of affiliation by holding itself out as a common carrier. See RKO General, Inc. v. FCC, 670 F.2d 215, 222-24 (D.C.Cir.1981) (regulated parties must have reasonable notice of prohibited con- duct). The same contention, however, was rejected in our prior decision. There, we stated that the carrier- user exception “apparently refers to the offerings of a common carrier” and concluded that “we do not see how petitioners could reasonably have believed that all of their interconnections fell within that exception.” NITCO /, 824 F.2d at 1208 & 1209 n. 4. This resolution constitutes the law of the case and, as such, represents a complete 7a answer to petitioners’ argument in this respect.? See C. Wright & A. Miller, 18 Federal Practice & Procedure § 4478 (1981). Petitioners quibble that Ohio Bell and C & P should not have been deemed qualified for the carrier-user ex- ception because in each case only one cable company was ultimately awarded a franchise. But this observation fails to distinguish between the availability of common carrier services, on the one hand, and, on the other, the actual provision of common carriage to multiple cable operators. As we understand it, the FCC’s interpretation 2In any event, we note in passing that petitioners’ present pre- dicament cannot reasonably be attributed to the alleged vagueness of the cross-ownership regulations. First, it was established long ago that telephone companies are required to obtain Commission approval before constructing or operating cable distribution chan- nels. General Tel. Co. of California v. FCC, 413 F.2d ai 309 (D.C. Cir. 1969). The application process itself would have provided NITCO, ex ante, with particularized regulatory guidance, yet NITCO never sought the required approval. Petitioners have also failed to convince that the Commission’s interpretation of the carrier-user exception is unprecedented. The need to eliminate favored treatment of telephone company affiliates is, of course, the cross-ownership rules’ raison d’etre. In the Matter of Applications of Telephone Companies for Section 214 Certificates for Channel Facilities Furnished to Affiliated Community Antenna Television Systems, 21 FCC Red 2d 307, 323-26 (1970) (“Cross-Ownership Rules”). Indeed, the Commission explained its decision in C & P, in part, by reference to C & P’s “willingness to provide equivalent facilities to others on like terms.” The Chesapeake & Potomac Tele- phone Company, 57 Rad.Reg.2d 1003, 1006 (1985) ; see also, Comark Cable Fund III v. Northwestern Indiana Telephone Company, 103 FCC2d 600, 609 (1985) (distinguishing C & P on the ground that “we granted an application, duly filed pursuant to Section 214(a) of the Act and our cross-ownership rules, which had sought certifi- cation that the public interest would be served by the construction there proposed; .. . a public offering to be tariffed at the Commis- sion was involved and thus, a ‘carrier-user relationship’ within the meaning of the sole exception to the broad language in Note 1(a) to Section 63.54." (emphasis supplied). | — 8a of the carrier-user exception requires only the former (i.e., standing ready to provide common carrier services to any and all users). Indeed, the Commission has placed much emphasis on the fact that Ohio Bell and C & P assumed an obligation (by virtue of their certificates of public convenience and necessity) to provide cable facili- ties on a common carrier basis. J.A. at 2016, 2018 n. 28. From all that appears, then, the existence of only one franchisee in both the Ohio Bell and C & P settings re- sulted not from the telephone companies’ refusal to pro- vide common carriage, but from the licensing decisions of the local governments involved. In contrast, the FCC found that NITCO refused to offer similar terms to a competing cable company and reasonably took account of the fact that NITCO has claimed throughout these proceedings that it could serve Northwest on a nontariff basis, that is, without obtaining a certificate of public convenience and necessity. J.A. at 2016. Petitioners further contend that in its most recent or- der the FCC has impermissibly based its finding of af- filiation on the totality of the circumstances, instead of specifying which transactions are prohibited by the rules. Petitioners cite Leflore Broadcasting Co. v. FCC, 636 F.2d 454, 463 (D.C. Cir. 1980) for the proposition that such a “gestalt” approach to agency decision-making is unacceptable. Not quite. In Leflore, we stated that an agency normally should not explain its choice of remedies in “gestalt” terms because if one or more elements of the gestalt were flawed, remand might be required to insure that the agency still viewed the particular remedy im- posed as appropriate. A Leflore-type remand is, however, completely uncalled for here because petitioners have, in light of the regulations’ broad sweep, failed to demonstrate that any of the indicia relied up by the FCC for its find- ing of affiliation was improper. Indeed, in Leflore the court declined to impose a remand for similar reasons. Id. at 463 and n.83. In sum, the FCC’s interpretation of the carrier-user exception reasonably took into account the fact that Ohio Bell and C & P evinced a willingness to deal with cable companies on a common carrier basis, whereas NITCO did not. III Petitioners and intervenors, the United States Tele- phone Association and the Bell Atlantic Corporation, at- tempt to assert various challenges not raised in the in- itial proceedings before the Commission and this court. Specifically, petitioners argue that the FCC’s cross-own- ership regulations cannot continue to be applied in light of the Cable Communications Policy Act of 1984, 47 U.S.C. § 521 et seq. (Supp.1986), which became effective after initiation of this action, but prior to the Commis- sion’s initial order. Petitioners further contend that the cross-ownership prohibitions are unconstitutional on their face and as applied. For their part, the intervenors go even further and contend that the cross-ownership pro- visions as contained in the Cable Act are facially uncon- stitutional. Confronted with this rather daunting fusilade, we re- fuse to engage in the invited widened battle; in our view, consideration of these arguments cannot be reconciled with well-established principles of waiver, exhaustion of remedies and law of the case. First. It is elementary that where an argument could have been raised on an initial appeal, it is inappropriate to consider that argument on a second appeal following remand. Laffey v. Northwest Airlines, 740 F.2d 1071, 1089-90 (D.C.Cir.1984). This widely-accepted rule fur- thers the important value of procedural efficiency, 18 C. Wright & A. Miller, Federal Practice & Procedure § 4478 (1981), and prevents the “bizarre result” that “a party who has chosen not to argue a point on a first appeal should stand better as regards the law of the case than 10a one who had argued and lost.” Laffey v. Northwest Air- lines, 740 F.2d at 1089-90, quoting Fogel v. Chestnutt, 668 F.2d 100, 109 | 9dCir.1981), cert. denied, 459 U.S. 828, 103 S.Ct. 65, 74 L.Ed.2d 66 (1982). To be sure, Laffey involved a statutory question (failure to contest a formula for calculating back-pay under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (1982) ), but its logic applies to constitutionally grounded arguments as well. This is especially so where, as here, none of the parties have come forward with an explana- tion (beyond inadvertence) for the failure to properly present these issues in the initial appeal.’ Second. Petitioners’ Cable Act-based and “as applied” constitutional arguments are also barred by section 405 of the Federal Communications Act. That familiar pro- vision states, in pertinent part: The filing of a petition for rehearing shall not be a condition precedent to judicial review of {an FCC deciison] except where the party seeking such re- view .. . relies on questions of law and fact upon which the Commission . . - has been afforded no op- portunity to pass. 47 U.S.C. § 405 (1982). We have repeatedly held that section 405 codifies time-honored exhaustion principles, including the “general rule that courts should not topple over administrative decisions unless the administrative body not only has erred but has erred against objection made at the time appropriate under its practice.” Wash- ington Ass’n for Television & Children v. FCC, 712 F.2d 677, 680-82 (D.C.Cir.1983 ) quoting, United States v. L.A. Tucker Truck Lines, 344 US. 33. 37, 73 S.Ct. 67, 69, 97 L.Ed. 54 (1952) | emphasis supplied); see also City of 3 The Laffey rule is of particular importance with respect to the facial constitutional arguments, because such arguments are not generally subject to exhaustion requirements. Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975). lla Brookings Mun. Tel. Co. v. FCC, 822 F.2d 1153, 1163 & n. 26 (D.C.Cir.1987). In this case, there can be no question that petitioners did not present their Cable Act and “as applied” con- stitutional claims in the initial proceedings before the FCC. NITCO I, 824 F.2d at 1209-10 n. 8. Petitioners contend, however, that section 405’s exhaustion require- ment has been met by virtue of the FCC’s having en- joyed an “opportunity” on remand to address these claims. As we just noted, however, exhaustion principles normally require compliance with the agency’s procedural rules and rulings). The relevant inquiry is thus whether, in light of petitioners’ initial failure to raise constitu- tional and statutory issues, the Commission erred in not addressing these arguments on remand. We think not. The Commission determined that consideration of new arguments was not required by the terms of our remand and would not be in the public interest. J.A. at 2019 n.40. That conclusion is unexceptionable. Petitioners admit that nothing prevented them from advancing these argu- ments in the initial proceedings. That being so, the FCC has simply refused to allow petitioners to secure, by vir- tue of the fortuity of our remand, a second opportunity to comply with the exhaustion requirements embodied in section 405. The efficiency and fairness values served by exhaustion principles would be seriously compromised if agencies were obliged to furnish such second bites at the apple.* Finally, it should go without saying that our decision in Meredith Corp. v. FCC, 809 F.2d 863 (D.C.Cir.1987) ‘The same reasoning disposes of petitioners’ contention that their constitutional and Cable Act claims are properly presented because the FCC has been afforded an “opportunity” to pass on these issues in a still-pending rulemaking proceeding. Compare Great Falls Community TV Cable Company Co. v. FCC, 416 F.2d 232, 239-40 (9th Cir. 1969) (exhaustion of administrative remedies futile where contrary agency position clarified by recently concluded rulemaking ). —-—— 12a does not ordain a different exhaustion regime for consti- tutional claims. In Meredith, the FCC (consistent with its procedural rules) granted a motion for reconsideration raising a new constitutional argument. The Commission conceded that it viewed the constitutional objection as meritorious, but it decided, for its own reasons, to ignore the argument and proceed with its enforcement action. In that context, this court held that an agency could not ignore a properly presented constitutional claim advanced in an enforcement proceeding. Jd. at 869-70. Here, in contrast, the FCC reasonably declined to address new ar- guments on remand. Third. Petitioners’ Cable Act and “as applied” con- stitutional arguments run afoul of the doctrine of law of the case, which normally prevents a court from revisiting issues that have been expressly (and in some cases im- pliedly) resolved on a first appeal. 18 C. Wright & A. Miller, Federal Practice & Procedure, § 4478 (1981). One week prior to oral argument of their first appeal, petitioners attempted (via a supplemental brief) to raise the Cable Act and “as applied” constitutional arguments. The earlier panel rejected this contention, explaining that petitioners had failed to comply with section 405’s ex- haustion requirement. NITCO I, 825 F.2d at 1210-1211 n. 8. We also observed that the Cable Act argument represented a particularly poor candidate for first-time consideration on appeal because petitioners had actually argued before the Commission that the Cable Act did not apply to their case. Jd. Especially in this horse-switching- in-midstream context, law of the case principles provide an additional basis for our determination not to consider petitioners’ Cable Act and “as applied” constitutional contentions.*® 5 Our ultimate conclusion that Cable Act claims are not properly presented dooms petitioners’ argument that the Commission's dives- titure order cannot be reconciled with Eagle Telecommunications, 13a In sum, the constitutional and Cable Act-based chal- lenges to the cross-ownership rules are not properly before us. The Commission has, moreover, demonstrated that its orders are based on a reasonable interpretation of the cross-ownership regulations and the Commission’s prior precedents. Accordingly, the petition for review is Denied. Inc., 54 Rad.Reg.2d 1124 (1983), recons. granted, 59 Rad. Reg.2d 1243 (1985). In that case, the Commission initially required Eagle to divest itself of cable facilities constructed in violation of the cross-ownership regulations. While review of the order was pend- ing, however, the Cable Act became effective. Eagle then obtained relief from divestiture on the ground that its facilities came within the broadened rural exemption contained in the Cable Act. Peti- tioners urge that, under Eagle, the Cable Act must be applied to their case and that divestiture is inappropriate because the Cable Act has “overruled” the broad definition of the term “affiliate’”’ in the cross-ownership regulations. As alluded to previously, however, petitioners, by their own liti- gation strategy, have lost any claim to the protections of the Cable Act, and this includes Cable Act-based attacks on divestiture. We therefore need not address the intriguing question whether the Cable Act governs enforcement actions commenced before, but pend- ing at the time of, its effective date. See 47 U.S.C. §533(f) (Supp. 1986) (grandfathering clause of Cable Act’s cross-ownership provi- sions); Pipefitters Local Union v. United States, 407 U.S. 385, 432- 35, 92 S.Ct. 2247, 2272-74, 33 L.Ed.2d 11 (1972) (discussing the application, vel non, of the savings statute, 1 U.S.C. § 109 (1982), to prosecutions pending at the time of a change in the governing law). For the same reasons, we do not address petitioners’ conten- tion that the definition of affiliate in the cross-ownership rules is at odds with the Cable Act. l4a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 88-1521 NORTHWESTERN INDIANA TELEPHONE COMPANY, INC. and NORTHWEST INDIANA CATY, INC., Petitioners ¥. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Respondents U.S. TELEPHONE ASSOCIATION, et al., Intervenors Before: Wald, Chief Judge; and Robinson, Circuit Judge ORDER [Filed June 27, 1989] Upon consideration of petitioners’ Petition for Re hearing, filed May 26, 1989, it is ORDERED, by the Court, that the petition is denied. Per Curiam FOR THE COURT: CONSTANCE L. DUPRE - Clerk By: /s/ Robert A. Bonner ROBERT A. BONNER Deputy Clerk circulated to the full Court. requested the taking of a vote thereon. Upon considera- l5a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT . No. 88-1521 NORTHWESTERN INDIANA TELEPHONE COMPANY, INC. and NORTHWEST INDIANA CATV, INC., Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Respondents U.S. TELEPHONE ASSOCIATION, et al., Intervene ’s Before: wards, Ruth B. Ginsburg, Silberman, Buckley, Wald, Chief Judge; Robinson, Mikva, Ed- Williams, D.H. Ginsburg and Senteile, Circuit Judges ORDER [Filed June 27, 1989] Petitioners’ suggestion for rehearing en banc has been tion of the foregoing, it is ORDERED, by the Court en banc, that the suggestion is denied. FOR THE CourT: CONSTANCE L. DUPRE Clerk By: /s/ Robert A. Bonner ROBERT A. BONNER Deputy Clerk SES No member of the Court l6a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 88-1521 NORTHWESTERN INDIANA TELEPHONE COMPANY, INC. and NORTHWEST INDIANA CATV, INC., Petitioners V. FEDERAL COMMUNICATIONS COMMISSION and UNITED STATES OF AMERICA, Respondents U.S. TELEPHONE ASSOCIATION, BELL ATLANTIC TELEPHONE COMPANY, NATIONAL CABLE TELEVISION ASSOCIATION, INC., U.S. CABLE TELEVISION ASSOCIATION, INC., U.S. CABLE OF NORTHERN INDIANA, Intervenors Petition for Review of an Order of the Federal Communications Commission Before: WALD, Chief Judge, and ROBINSON and STARR, Circuit Judges JUDGMENT This cause came on to be heard on the petition for review of an order of the Federal Communications Com- mission and was argued by counsel. On consideration thereof, it is 17a ORDERED and ADJUDGED, by the Court, that the petition for review is denied, in accordance with the Opinion of the Court filed herein this date. Per Curiam FOR THE COURT: s/ Wendy Jennis s/ Patricia Rislar for CONSTANCE L. DUPRE Clerk Date: April 11, 1989 Opinion for the Court filed by Circuit Judge Starr. 18a APPENDIX B BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 File No. E-84-1 In the Matter of COMARK CABLE FUND III, d/b/a CCI CABLEVISION, Complainant, V. NORTHWESTERN INDIANA TELEPHONE COMPANY, INC., and NORTHWESTERN INDIANA CATV, INC., d/b/a NORTHWEST INDIANA CABLEVISION, successor to RHYS MUSSMAN d/b/a NORTHWESTERN INDIANA CABLEVISION, Defendants. MEMORANDUM OPINION AND ORDER Adopted: May 5, 1988 Released: May 27, 1988 By the Commission: 1. Pending before the Commission is a remand order by the United States Court of Appeals for the District 19a of Columbia Circuit (the Court), decided July 31, 1987, in the subject proceeding.' The Court’s Order requires the Commission to clarify our conclusion that North- western Indiana Telephone Company, Inc. (NITCO) and Northwestern Indiana CATV, Inc. (Northwest) violated our telephone/cable television cross-ownership rules.? This order constitutes the Commission’s compliance with the Court’s mandate. I. BACKGROUND A. The Commission’s Orders 2. Our previous orders in this matter* required NITCO and Northwest (defendants) and Northwest’s predecessor, Rhys Mussman d/b/a Northwestern Indiana Cablevision, to divest cable television distribution facili- ties constructed within NITCO’s telephone service area without our prior approval. These Orders found defend- ants had committed substantial violations of section 63.54 of our Rules‘ and section 214(a) of the Communications 1 Northwestern Indiana Telephone Co. v. FCC, 824 F.2d 1205 (D.C. Cir. 1987) (the Court’s Order). 2 47 C.F.R. §§ 63.54-63.58. 3Comark Cable Fund III, 100 FCC 2d 1244, recon. denied, 103 FCC 2d 600, conditionally stayed, 104 FCC 2d 451 (1985) (Orders). The conditional stay was automatically terminated upon the refusal of the Court to issue a stay of our Orders. Northwestern Indiana Telephone Co. v. FCC, No. 85-1542 (D.C. Cir. July 11, 1986) (per curiam). 447 C.F.R. § 63.54 provides in pertinent part as follows: APPLICATIONS OF TELEPHONE COMMON CARRIERS TO CONSTRUCT AND/OR OPERATE CABLE TELEVISION CHANNEL FACILITIES IN THEIR TELEPHONE SERV- ICES AREAS § 63.54 Facilities for provision of video programming by a tele- phone common carrier in its telephone service area. (a) No telephone common carrier subject in whole or in part to the Communications Act of 1934 shall engage in the provi- sion of video programming to the viewing public in its tele- Ee 20a Act * based on, inter alia, our finding that such construc- tion by NITCO had been on behalf of a cable television company which we found had been affiliated with NITCO. Defendants had been cautioned as early as April of 1984 that any further construction and operation of cable tele- vision facilities by Northwest within NITCO’s telephone service area without prior Commission authorization would be at defendants’ peril and render them subject to sanctions, including divestiture.* Nevertheless, defendants continued to construct and operate cable television facili- ties in three separate communities within NITCO’s tele- phone service area without applying for or receiving the phone service area, either directly, or indirectly through an affiliate owned by, operated by, controlled by, or under common control with the telephone common carrier. (b) No telephone common carrier subject in whole or in part to the Communications Act of 1934 shall provide channels of communications or pole line conduit space, or other rental arrangements, to any entity which is directly or indirectly owned by, operated by, controlled by, or under common control with such telephone common carrier, where such facilities or arrangements are to be used for, or in connection with, the provisions of video programming to the viewing public in the telephone service area of the telephone common carrier. Note 1: (a) As used above, the terms “control” and “affiliate” bar any financial or business relationship whatsoever by contract or otherwise, directly or indirectly between the carrier and the cus- tomer, except only the carrier-user relationship. (b) Examples of situations in which a carrier and its customer will be deemed to be controlled or having a relationship include the following, among others: Where one is the debtor or credi- tor of the other (except with respect to chargs for communica- tion services); where they have a common officer, director, or other employee at the management level; where there is any element of ownership or other financial interest by one in the other; and where any party has a financial interest in both... . 547 U.S.C. § 214(a). See note 38, infra. * See 100 FCC 2d at 1253 n.37. 2la requisite FCC authorization pursuant to Part 63 of our Rules.’ B. The Court’s Order 3. In its decision, the Court has remanded the proceed- ing to us for a further explanation in a relatively narrow area. It was concerned that our finding that defendants were affiliated might have been based in_part on criteria that appeared inconsistent with our Rules and precedent. It coneluded that further elucidation was necessary.* In this regard, the Court also found that the lease of pole space, by itself, to an unaffiliated cable operator was con- templated and permissible under our Rules.’ Accordingly, the Court was troubled by language in our order denying reconsideration that appeared to suggest that the sole act of renting pole space converted the lessee into an affiliate of the lessor.’® Further, in light of our decision in The Chesapeake and Potomac Co., 57 Rad. Reg. 2d 1003 (1985) (C & P), the Court found that the boundaries of the “carrier-user” exception to our telephone/cable tele- vision cross-ownership prohibitions needed to be ex- plained.’! Lastly, the Court raised questions regarding our section 214 certification process. Because it is clear that a certificate would be required if NITCO and North- west are found to be affiliated, the Court stated that if, on remand, the Commission determines the parties to be af- filiated, the issue may not need to be further addressed.” 7 Part 63 of our Rules, 47 C.F.R. § 63.01, et seq., implements sec- tion 214 of the Act as well as our telephone/cable television cross- ownership policy decision, Section 214 Certificates, 21 FCC 2d 307 (1970), aff'd sub nom. General Telephone of the Southwest v. United States, 449 F.2d 846 (5th Cir. 1971). 8 Court’s Order, 824 F.2d at 1206-07, 1210. ® Td. at 1209. 10 Td. 11 Jd. at 1210. ‘7d, at 1210-11. 22a Accordingly, the case was remanded for an explanation of our conclusions in these limited respects."’ II. DISCUSSION A. The Affiliation Standard Under Section 63.54 4. Section 63.54(a) precludes a telephone common car- rier from engaging in cable television service in its tele- phone service area through an affiliate. The first note to section 63.54 states that the term “affiliate” bars any fi- nancial or business relationship whatsoever by contract or otherwise, directly or indirectly between the carrier and the customer, except only the carrier-user relation- ship.” '* Section 63.54(b) precludes a telephone common carrier from providing space on its poles to an affiliate engaged in the business of providing cable television service. 5. In the instant proceeding, we made a determination of affiliation based on all of the facts of record taken together. Specifically, we listed numerous “transactions” which indicated such an affiliation existed. In our order denying reconsideration, we reiterated four of the trans- actions emphasized in our original decision and added three more to the list, including NITCO’s lease of tele- phone pole space to Northwest. Although, as noted by the Court, our first opinion based the determination of affiliation on all of the facts taken together, the opinion denying reconsideration stated that “each of [the seven listed relationships] was and continues to be prohibited by Section 63.54.” 103 FCC 2d at 602. This statement 13 Although the Court’s mandate appeared to vacate our previous Orders, the Court granted our request for clarification of the man- date to make clear that no vacation of our Orders was contemplated by the Court, and amended the mandate accordingly. Northwest- ern Indiana Telephone Co. v. FCC, No. 85-1542 (D.C. Cir. Nov. 17, 1987). 1447 C.F.R. § 63.54 n.1(a). 23a requires elucidation. It was not our intention to state that the NITCO pole leases to Northwest or Rhys Muss- man are by themselves prohibited under section 63.54 (a) or that the simple leasing of pole space constitutes indicia of an affiliation. Rather, we intended to conclude that the lease of pole space was a prohibited relationship solely because of our finding of affiliation for other reasons.'® In order to clarify our position in this regard, we will briefly summarize the evidence upon which we deter- mined that a prohibited affiliation existed. 6. As the Court noted, these transactions included: Robert Mussman’s lease of office space to Northwest; NITCO’s sublease of land used as the site of Northwest's antennas and other cable equipment; a paid consulting agreement between Rhys Mussman and NITCO: Robert Mussman’s personal guarantee of $450,000 in bank loans made to Northwest; Robert Mussman’s personal guaran- tee of Rhys Mussman’s agreement to indemnify one of the localities served by Northwest against costs arising from litigation involving Northwest; and Northwest’s use of NITCO’s post office box and mailing address;'7 and the particular oral private contractual agreements be- tween defendants for construction and maintenance with respect to Northwest’s cable systems in three Indiana communities.'* 7. In addition to these clear indicia that an “affilia- tion” existed between the two companies, the record in- 19 See, e.g., our Orders, 100 FCC 2d at 1251, 103 FCC 2d 613 at n.29, and para. 11, infra. '® Robert Mussman now directly leases such property to North- west. It appears that Northwest also proposed to locate a micro- wave radio receive site on property owned by or leased to NITCO directly behind its DeMotte central office. See Orders, 103 FCC 2d at 606 n.13. 17 Court's Order, 824 F.2d at 1207. 18 See Orders, 103 FCC 2d at 602-03. 24a dicates other transactions and courses of dealings which support this conclusion. For example: a salaried em- ployee of the telephone company (the Executive Vice President) was simultaneously doing business as an in- dividual proprietorship) as the cable company,” that same employee was responsible for negotiating pole attach- ment agreements on behalf of the telephone company with cable companies with which he was competing for cable franchises in communities within the telephone com- pany’s service area;*’ all contractual arrangements be- tween the companies, involving hundreds of thousands of dollars, were oral; “" an ora! consulting arrangement be- tween the telephone company and the chief executive officer of the cable company was not reduced to writ- ing; *? and the cable company’s CEO represented to city franchising officials that he was the Executive Vice Pres- ident of his father’s telephone company and further rep- resented 2° that his father was Secretary-Treasury of his cable company.* For all these reasons, we confirm and clarify our earlier view that an affiliation did exist, in- dependent of the fact that the cable company leased pole space from the telephone company. 8. We now turn to the question whether the transac- tions are exempt because they fall within the carrier- 19 Jd., 100 FCC 2d at 1251. 20 Jd., 103 FCC 2d at 612. 21 Some of the agreements, although not all, were reduced to writ- ing-only after a formal complaint had been filed. Id., 100 FCC 2d at 1248. The fact that the contracts were oral, rather than written, is an important indication that the relationships were not the sort of arms-length transactions that can be expected of truly independ- ent entities. 22 Td. 23 The defendants admit that this representation was made, but they claim that it was false. 24 Jd., 100 FCC 2d at 1251. 25a user relationship. The Court said that, in light of C & P and Ohio Bell Telephone Co., 1 FCC Red 942 (1986) (Ohio Bell), it could not clearly determine the boundaries of the carrier-user exception.“ We therefore take this opportunity to clarify our position in this regard. Under existing law, an essential element of common carriage is an entity’s holding itself out to serve all customers indis- criminately.% The key to the carrier-user exemption is whether the carrier is providing facilities as part of its services as a common carrier and whether such services are generally available. Thus, the “carrier-user relation- ship” exception to section 63.54 of our Rules contem- plates transactions that entail a general offer to provide on an indiscriminate basis substantially the same service or services to any and all similarly-situated companies or members of the public. 9. In C&P, we authorized the carrier to construct and maintain channel distribution facilities for use by a franchised cable television customer pursuant to a pro- posed arrangement which would allow the cable customer to enjoy attributes of ownership in the facilities although legal title would be retained by the carrier. The Ohio Bell decision authorized a carrier’s proposal to construct and maintain channel distribution facilities which (ex- cept for the “hub” portions physically located on the car- rier’s premises) were to be sold to the cable customer. The cable customer would be obligated to make periodic payments for maintenance of the lines and use of the “hub” facilities. In both the C&P and Ohio Bell cases. the construction and maintenance of the cable distribu- tion facilities were available generally to the public. That 25 Court's Order, 824 F.2d at 1210. 76 National Association of Regulatory Utility Commissioners v. FCC, 525 F.2d 630, 641 (D.C. Cir.), cert. denied, 425 U.S. 999 (1976). See also Domestic Fixed-Satellite Transponder Sales, 90 FCC 2d 1238, 1255-57 (1982), aff’d sub nom. Wold Communications v. F.C.C., 735 F.2d 1468 (D.C. Cir. 1984). 26a fact was critical to our determination, in each of these cases, that the “carrier-user relationship” applied. 10. Here, in contrast, neither NITCO nor Northwest ever even argued that they had, or ever contemplated having, a common carrier-user relationship and indeed it is apparent that they had no such relationship. Their position has always been that NITCO’s relationship with Northwest was not as a common carrier but rather as a private contractor. Their conduct supports this. Unlike the carriers in C & P and Ohio Bell, NITCO did not hold itself out to others under comparable terms and condi- tions. To the contrary, competitors or potential competi- tors of Northwest did not have the opportunity to enter into similar agreements » -h NITCO on terms and con- ditions that would not be discriminatory or otherwise in- consistent with the regulatory regime of sections 201 through 205 of the Act. In fact, Northwest faced a com- peting cable television company that was operating in the area, which had not been offered the same arrangement provided to Northwest.” Thus, the relationship fostered by NITCO was not an indifferent holding out of service required for coverage under the carrier-user relation- ship.** 27 Orders, 103 FCC 2d at 611. Indeed, NITCO did not offer arrangements to a competitor of Northwest on the same oral terms and conditions extended to Northwest. Such conduct raised serious anticompetitive concerns because Rhys Mussman, the person re- sponsible for negotiating pole attachment agreements on behalf of NITCO, was himself planning to lease space on NITCO’s poles and to construct Northwest’s cable television systems in the same com- munities. 28 Even though only one company had been awarded a franchise or authority to engage in cable television operations in the District of Columbia in C&P and in Cleveland in Ohio Bell, the carriers were obligated to indiscriminately hold themselves out to serve all similarly-situated customers under the same terms and conditions of service. If more than one cable company is franchised in the service areas of those cases, the Communications Act would require 27a 11. This proceeding is distinguishable from C & P for additional reasons. Unlike C & P, where the telephone and cable companies were independent entities before they entered into the proposed tariff services there in- volved, as explained above, the two companies here were affiliated independently of the pole leasing arrange- ments.” Rhys Mussman simultaneously wore both his telephone company and his cable company hats. As Exec- utive Vice President of NITCO, he had responsibility for negotiating agreements with cable television companies seeking to lease space on NITCO’s poles. As Rhys Muss- man d/b/a Northwestern Indiana Cablevision, he sought authority to construct cable systems in two Indiana com- munities where a competing cable operator also was seek- ing such authority and to lease space on NITCO’s poles in those communities. His father, the president, chair- man and majority stockholder of NITCO, also was di- rectly involved in his son’s cable venture by guaranteeing financial and legal obligations of Rhys’ cable company.” the telephone companies to permit those other cable companies to obtain those carriers’ services. 29 Here, we are concerned about the anticompetitive impact of Rhys Mussman negotiating with a competing cable company for pole space on behalf of the telephone company at the same time he was seeking franchises for his own cable systems. Orders, 103 FCC 2d at 611-612. 39 The Court asked for an explanation why, in light of the finding in C & P that the proposed transfer of certain attributes of own- ership in channel distribution facilities to the cable company fell within the carrier-user exception, “transfer of ownership rights in toto—as occurred in the present case—is treated differently.” 824 F.2d at 1210 (footnote omitted). As clarified above, the avail- ability of the carrier-user exception in a particular situation de- pends on whether there is an indifferent holding out, and not on whether a telephone company leases or sells the facilities that it proposes to construct for use by a cable television operator. What distinguishes the instant case from C&P and Ohio Bell is that in those cases the telephone company and the cable company did have 28a 12. In sum, unlike other cases involving a carrier’s public holding out to construct and maintain cable televi- sion distribution facilities on a nondiscriminatory basis,*’ NITCO made no such indifferent holding out to other cable television entrepreneurs. It is NITCO’s failure to deal with Northwest on common carrier terms that causes us to conclude that there was no carrier-user relationship. Because of undisputed direct and indirect financial and business relationships between defendants determined on the record, quite apart from their pole attachment lease arrangements, we concluded that defendants were affili- ated companies within the meaning of our rules and that divestiture of the unlawfully constructed cable facilities was warranted under all of the circumstances. In addi- tion, for the reasons stated above, we find that the de- fendants’ relationship did not fall within the carrier- user exception. Accordingly, C&P and Ohio Bell are not controlling in this case. B. The Necessity for Section 214 Certification 13. The final issue before us is whether NITCO vio- lated section 214 of the Act by constructing cable televi- sion distribution facilities for Northwest. NITCO con- tends that section 214 does not apply to it because it has engaged in interstate communication only as a “connect- ing carrier,” 7.e., solely through physicai connection with the facilities of another common carrier, and therefore is not subject to section 214. In adopting our cross- a carrier-user relationship for which there is an explicit exemption from the cross-ownership bar in section 63.54(a). See para. 9, supra. 31 See, e.g., C&P, 57 Rad. Reg. 2d at 1006 and 1008 (even though the District of Columbia decided to authorize only one cable operator, the carrier was willing to provide equivalent facilities to others on like terms, made similar offers to others as it had te the city’s franchisee, and also complied with our rules relating to the availability of pole space); The Chesapeake and Potomac Telephone Company Tariff F.C.C. No. 10, effective October 1, 1986 (public offering of broadband transport facilities). 29a ownership rules, we stated that cable television service offered by an affiliate of a telephone company would be considered to be cable television operations by the tele- phone ccinpany “without any further necessity of pierc- ing the corporate veil’ to show that the companies were under common control.*? Thus, when NITCO constructed cable lines to be used by its affiliate, Northwest, for transmitting off-the-air broadcast television signals, which is interstate communication under section 2(a) of the Act, defendants became engaged in interstate commu- nication in a manner other than “solely through physical connection with the facilities of another carrier. .. .” and thus no longer remained a “connecting carrier” that is exempt from section 214(a) of the Act under section 2(b) (2) of the Act.** 14. With respect to interstate lines outside of carrier’s exchange telephone service area, we have granted ex- change telephone companies blanket section 214 authority to construct lines for their cable television services, their noncommon carrier services, or when the lines are to be sold to an unaffiliated party.** We similarly have granted blanket section 214 authority to construct interstate lines to nondominant carriers.** However, NITCO, as a local 32 Section 214 Certificates, 22 FCC 2d at 751 (1970). See Orders, 100 FCC 2d at 1255; 103 FCC 2d at 611, n.24. 33 See 47 U.S.C. §§ 153(u), 152(b) (2). 34 Section 63.08(a) of our Rules provides as follows: An exchange telephone common carrier or its affiliate is not required to file for authority pursuant to 47 U.S.C. 214 and 47 C.F.R. 63.10 to provide lines, or for existing lines, owtside of the exchange telephone service area of that carrier and any of its affiliates when the lines are (i) for its own cable tele- vision service; (ii) for its noncommon carrier services; or (iii) sold to an unaffiliated party. “Affiliate” is defined as in 47 C.F.R. 63.54. (emphasis added) Section 63.08(b) of our Rules provides as follows: a ~~ (b) If a nondominant common carrier and its affiliates are not affiliated with an exchange telephone common carrier, the OE 30a exchange telephone carrier, is a dominant carrier and thus was not exempt under section 63.08(b) from the need to file for and obtain prior section 214 authorization to construct cable television lines within its local tele- phone service area.*® 15. In view of the foregoing discussion, because de- fendants do not deny that they would have been re- quired to file for authorization pursuant to section 214 of the Act and section 63.54 of our Rules if they are prop- erly determined to have been affiliates,’ it is not neces- sary to reach the issue whether NITCO would have needed a section 214 certificate ** if defendants were not nondominant carrier or its affiliate is not required to file for authority pursuant to 47 U.S.C. 214 and 47 C.F.R. 63.01 to provide lines, or for existing lines, of the types described in paragraph (a) of this section between any domestic points. “Affiliate” is defined as in 47 C.F.R. 63.54 and “nondominant” is defined as in 47 C.F.R. 61.15a [sic]. The reference to the definition of “nondominant” should be to 47 C.F.R. 61.12(e). 36 We have determined that franchised exchange telephone com- panies possess control of essential facilities and will continue to be treated as dominant carriers for regulatory purposes. Com- petitive Common Carrier Rule Making, 85 FCC 2d 1, 11, 23-24 (1980). See also 47 C.F.R. § 61.12(c) where a dominant carrier is defined as a carrier found by the Commission to have market power (i.e., power to control prices). See, e.g., Letter from Russell D. Lukas to Chief, Commen Carrier Bureau, at 2 (Feb. 7, 1986 reproduced at Appendix to the Commission’s Motion for Expedited Consideration of Emer- gency Motion for Stay filed with the Court on July 11, 1986, at 16) ; 47 C.F.R. § 63.54 at note l(a Another distinguishing factor be- tween the instant case and C&P and Ohio Bell was defendants’ failure to file an appropriate section 214 application or request for waiver, which would have cerved as a vehicle for examining NITCO’s involvement in Rhys Mussman’s cable telev’sion opera- tions and as a means of ensuring mpliance with tne Act and ir policies under Part 63 of the Rules. See note 39, infra. * Section 214(a) pr les, in pertinent-part, that er : i new ne sla affiliates within the meaning of our telephone/cable tele- vision cross-ownership rules.* 16. Accordingly, IT IS ORDERED that the findings and conclusions in our Orders, as further explained and clarified herein, ARE HEREBY REAFFIRMED.” FEDERAL COMMUNICATIONS COMMISSION H. WALKER FEASTER III Acting Secretary first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require the construction . . . of such additional or extended line. . . . As used in this section the term “line” means any channel of communication established by the use of appropriate equipment, other than a channel of communication established by the interconnection of two or more existing channels. ... 89 See Court’s Order, 824 F.2d at 1211. As previously noted (see note 7, supra), Part 63 of our Rules implements not only section 214(a) of the Act, but also our telephone/cable television cross- ownership policies and rules. NITCO’s failure to file the required application pursuant to section 214(a) precluded not only the timely exercise of our statutory right and obligation to pass upon a carrier’s construction of interstate lines, but also deprived us of the vehicle by which we examine whether proposed construction by a telephone company of cable television facilities within its telephone service area would comply with our cross-ownership rules and policies. It was only after a competitor of Northwest filed a complaint alleging that defendants were violating sections 214(a) and 202(a) of the Act and section 63.54 of our Rules that we became aware of NITCO’s unauthorized construction of interstate lines within its telephone service area. 46 We have not addressed defendants’ pleading entitled “Petition to Terminate Proceedings” (filed September 4, 1987). The Court’s Order did not require us to reopen the record to accept additional comments or argument. Court’s Order, 824 F.2d at 1210 n.8. Rather, the Court merely remanded the case for the limited pur- poses discussed herein. We find that defendants’ attempt to inject new arguments at this late date as well as reargue positions already fully considered before the record was closed would not be in the public interest. Pcie ntearremmaitiaitineeil 32a APPENDIX C UNITED STATES COURT OF APPEALS DISTRICT OF COLUMBIA CIRCUIT No. 85-1542 NORTHWESTERN [INDIANA TELEPHONE COMPANY, INC., et al., Appellants, FEDERAL COMMUNICATIONS COMMISSION, Appellee. Argued March 19, 1987 Decided July 31, 1987 Petition for Review of an Order of the Federal Communications Commission Russell D. Lukas, with whom David L. Nace and Theresa Fenelon, Washington, D.C., were on brief, for appellants. Pamela L. Gist, Washington, D.C., also en- tered an appearance for appellants. Nancy E. Stanley, Counsel, F.C.C., with whom Jack D. Smith, Gen. Counsel, Daniel M. Armstrong, Associate Gen. Counsel and C. Grey Pash, Jr., Counsel, F.C.C., Catherine G. O’Sullivan and Marion L. Jetton, Attys., Dept. of Justice, Washington, D.C., were on the brief, for appellee. Gerald E. Goldstein, Counsel, F.C.C., Wash- ington, D.C., also entered an appearance for appellee. 33a Before BORK and SILBERMAN, Circuit Judges, and FRIEDMAN,” Circuit Judge, United States Court of Appeals for the Federal Circuit. Opinion for the Court filed by Circuit Judge SILBER- MAN. SILBERMAN, Circuit Judge: This case involves a dispute between the Federal Com- munications Commission (“FCC”), a telephone company in Indiana owned by an individual named Robert Muss- man, and a cable television company owned and managed by Robert Mussman’s son Rhys. Northwestern Indiana Telephone Company (““NITCO”), and Northwest Indiana CATV, Inc. (“Northwest”), the cable company, petition this court to review decisions by the FCC holding that ‘the two companies violated the agency’s telephone/cable cross-ownership rules, 47 C.F.R. § 63.54 (1986), as well as section 214(a) of the Communications Act of 1934, 47 U.S.C. § 214(a) (1982). The FCC decided that NITCO and Northwest were “affiliates,” making NITCO’s agree- ment to construct cable television facilities for Northwest in its telephone service area, and NITCO’s iease of tele- phone pole space to Northwest, violations of the Com- missivn’s rules. The FCC also held that NITCO violated the statute by failing to obtain certification from the Commission before constructing the cable television fa- cilities for Northwest. Because the Commission’s finding of “affiliation” was based in part on criteria that appear inconsistent with the Commission’s own rules and prece- dent, we remand the case for furt er explanation. I. A cable television operator transmits signals to cus- tomers by way of coaxial cable. The cable operator first collects the signals from the airwaves with an antenna * Sitting by designation pursuant to 28 U.S.C. §291(a). een" 34a or microwave receiver, amplifies and converts them using a “headend” device, and then sends them along a branch- ing series of distribution cables until they ultimately reach the homes of individual subscribers. A cable oper- ator usually gains access to the required distribution cables in one of three ways. The most expensive option is for the cable operator to build its own facilities. A!terna- tively, it can lease space on existing telephone poles and string its own cables along the poles. Or the telephone company can itself install, own and operate the cables and transmit signals for the cable operator by offering a “channel distribution” service. See General Tel. Co. of California v. FCC, 413 F.2d 390, 393 (D.C.Cir.), cert. denied, 396 U.S. 888, 90 S.Ct. 173, 24 L.Ed.2d 163 (1969). Northwest, the cable operator in this case, chose what appears to be a combination of the second and third options: although Northwest owns the facilities, NITCO, the local telephone company, not only leased space on its poles, but actually installed the cable lines as well. A competitor of Northwest complained to the FCC in 1983 that NITCO and Northwest were engaged in con- duct prohibited by the Commission’s rules governing affil- iations between telephone companies and cable operators, and contended that NITCO had improperly constructed the cable facilities for Northwest without obtaining a certificate from the Commission. In response, NITCO and Northwest denied that a certificate was required, and also denied any affiliation. NITCO and Northwest did acknowledge, however, a number of past and current business relations between the two companies (or their principals) in addition to the lease of pole space and construction of the cable facilities. These transactions included: Robert Mussman’s lease of office space to North- west; NITCO’s lease of land used as the site of North- west’s antennas and other cable equipment; a paid con- sulting agreement between Rhys Mussman and NITCO; 35a Robert Mussman’s personal guarantee of $450,000 in bank loans made to Northwest, and of Rhys’ agreement to indemnify one of the localities served by Northwest against costs arising from litigation involving Northwest; and Northwest’s use of NITCO’s post office box and mail- ing address. The two companies also admitted that Rhys had (falsely) represented to various town officials that Robert Mussman was an officer of Northwest. In an opinion released on March 18, 1985, the Com- mission determined that NITCO and Northwest were affiliates within the meaning of the FCC’s telephoae ‘cable cross-ownership rules. See Comark Cable Fund III, 100 F.C.C.2d 1244 (1985). These rules prohibit . telephone company from furnishing cable television to the public in the telephone company’s telephone service area, either directly, or indirectly through an affiliated cable company, including renting pole space to an affiliate. 47 C.F.R. § 63.54.' Note 1(a) to the rules defines the term “affili- ate” as including “any financial or business relationship whatsoever by contract or otherwise, directly or indi- rectly, between the carrier and the customer, except only the carrier-user relationship.”” The Commission stated that five of the interconnections NITCO and Northwest 1 The cross-ownership rules are as follows: (a) No telephone common carrier . .. shall engage in the furnishing of cable television service to the viewing public in its telephone service area, either directly, or indirectly through an affiliate owned by, operated by, controlled by, or under common control with the telephone common carrier. (b) No telephone common carrier... shal! provide channels of communications or pole line conduit space, or other rental arrangements, to any entity which is directly or indirectly owned by, operated by, controlled by, or urder common control with such telephone common carrier, where such facilities or arrangements are to be used for, or in connection with, the provision of cable television services to the viewing public in the telephone service area of the telephone common carrier. 47 C.F.R. § 63.54 (1986). 36a had admitted—the loan guaranty; the guaranty of the indemnification agreement; the consulting contract; the public representations as to Robert Mussman’s role in Northwest; and the agreements to construct Northwest’s cable television systems—‘‘together with all the other facts set forth” in the decision led to the conclusion that NITCO and Northwest were affiliates. 100 F.C.C.2d at 1253. Because Northwest was an affiliate, NITCO had violated the FCC rules by leasing pole space to North- west and by constructing and maintaining the three cable television systems for Northwest. The Commis: sion also decided that NITCO had not legally constructed cable facilities for the transmission of broadcast tele- vision signals since it lacked a certificate required by 47 U.S.C. § 214(a),? and therefore ordered NiTCO to terminate all affiliations with Northwest and to divest all the cable facilities. NITCO asked the Commission to reconsider, arguing, inter alia, that the FCC’s reasoning was inconsistent with a FCC opinion, released only weeks earlier, in which the Commission authorized a telephone company to con- struct channel distribution facilities to be partially owned by a cable operator without finding that the transaction created an affiliation under Note l(a) of the cross- ownership rules. See The Chesapeake and Potomac Tele- phone Co., 57 Rad.Reg.2d 1003 (1985) (“C & P”). The 2 Section 214(a) reads: No carrier shall undertake the construction of a new line or of an extension of any line, or shall acquire or operate any line, or extension thereof, or shall engage in transmission over or by means of such additional or extended line, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require the construction, or operation, or construction and operation, of such additional or extended line... . [T]he term “line” means any channel of communica- tion established by the use of appropriate equipment. ... 47 U.S.C. §214(a) (1982). 37a Commission denied reconsideration, explaining that unlike the present case the C & P transaction “involved a ‘car- rier-user relationship’ within the meaning of the sole exception to the broad language in Note 1(a).” Comark Cable Fund III, 103 F.C.C.2d 600, 609 (1985). The FCC reiterated four of the five relationships emphasized in the first decision (but not Rhys Mussman’s public statements) and added three more to the list: the lease of office space to Northwest; the lease of land for North- west’s cable equipment; and NIJTCO’s lease of telephone pole space to Northwest. Although the FCC’s first opin- ion had based the determination of affiliation on “all of the . . . facts” taken together, the opinion denying re- consideration stated that “each of [the seven listed rela- tionships] was and continues to be prohibited by Sec- tion 63.54,” suggesting that any one of the relationships alone would create an affiliation. 103 F.C.C.2d at 602.* NITCO and Northwest thereafter filed their petition for review in this court and, while the petition was pending, requested that the Commission stay its order. The Commission subsequently issued a third opinion, granting the stay but conditioning it on terms that NITCO and Northwest declined to accept. II. The FCC’s telephone/cable company cross-ownership rules define “affiliate” in sweeping terms, covering, as we have noted, telephone companies and cable operators that have “any financial or business relationship whatsoever.’’ 47 C.F.R. § 63.54 Note 1(a). The rules contain an excep- tion, however, for the “carrier-user relationship,” which 8’ The FCC’s brief before this court adheres to the approach of the first opinion, stating “[I]t was reasonable for the Commission to conclude that the overall picture presented by all of its factual findings warranted a determination” that NITCO and Northwest were affiliates. Brief of Respondents at 33 (emphasis added). 38a apparently refers to the offerings of a common carrier. NITCO and Northwest argue that this “carrier-user” exception is ill-defined and has been interpreted incon- sistently by the FCC to authorize certain relationships between favored applicants but prohibit similar rela- tionships between others. In the present case, petitioners argue, several of the transactions between NITCO and Northwest listed by the Commission are almost identical to transactions that fell within the “carrier-user” excep- tion in C & P and other cases. Although an agency’s rea- sonable interpretation of its own rules is normally due deference, Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801, 18 L.Ed.2d 616 (1965), we agree, in light of C&P, that the Commission’s treatment of at least two of those transactions—NITCO’s lease of telephone space to Northwest, and NITCO’s agreement to construct and maintain Northwest’s cable facilities—is in need of fur- ther explanation.* The Commission’s claim that NITCO’s lease of pole space to Northwest supports a finding of affiliation be- tween the companies is on its face inconsistent with the very language of the cross-ownership rules. Section 63.54(b) of the rules prohibits a telephone company from renting telephone pole space to an affiliated cable oper- ator. It obviously follows that a telephone company can offer pole space to a cable operator that is unaffiliated. Indeed, a different section of the rules actually requires 4In addition to their contention that the FCC has interpreted the “carrier-user” exception inconsistently, NITCO and Northwest also argue that the cross-ownership rules are so unclear as to not give adequate prior notice of the standards by which telephone and cable companies are expected to guide their conduct. The relations at issue in this case, however, were initiated long before the release of C & P in January, 1985, and prior to C & P the cross-ownership rules appeared less uncertain. Although the Commission had never issued a decision (of which we are aware) explicitly interpreting the “carrier-user” exception, we do not see how petitioners could reasonably have believed that all of their interconnections fell within that exception. 39a a telephone company to lease pole space under certain circumstances. See 47 C.F.R. § 63.57. If renting pole space converts the lessee into an affiliate of the lessor, as the Commission’s opinion suggests, a telephone com- pany would be prohibited by the rules from ever renting pole space to any cable company at all. We simply can- not understand, then, how the lease of pole space by itself could be evidence of affiliation. The significance of NITCO’s construction of cable facilities for Northwest is more uncertain. We start with the undisputed proposition that a telephone com- pany may construct, maintain and own channel distri- bution facilities and use them to transmit television signals for independent cable operators without running afoul of the Commission’s cross-ownership rules.® That is so because early in the history of cable television regu- lation the Commission decided that a telephone company undertakes only a common carrier service when it trans- mits, using its own facilities, television signals for cable operators. See Common Carrier Tariffs for CATV Sys- tems, 4 F.C.C.2d 257, 260 (1966). See also General Tel. Co. of California, 13 F.C.C.2d 448, 454, reconsid. denied, 14 F.C.C.2d 170 (1968), aff'd, 413 F.2d 390, cert. denied, 396 U.S. 888, 90 S.Ct. 173, 24 L.Ed.2d 168 (1969). The Commission thus treats a channel distribution service as falling within the “carrier-user” exception to the Note 1(a) definition of affiliate. - 5 See 47 C.F.R. §63.54(b) (barring telephone companies from providing “channels of communication” to affiliated cable operators —but not all cable operators). See also 47 C.F.R. § 68.57 (tele- phone companies may “construct and/or operate distribution facili- ties for channel service to . . . independent cable systems” if the cable operators are first given the option of renting pole space) ; Eagle Telecommunications, Inc., 54 Rad.Reg.2d 1124, 1126 n. 3 (1983), reconsid. granted, 59 Rad.Reg.2d 1243 (1985) (“[T]he ban [in section 63.54(a)] is against the carrier furnishing program- ming. The carrier may construct cable television facilities within its telephone service are and offer them under tariff to another who would provide service to customers’’). 40a at en A 8 But judging from the Commission’s recent decision in C & P, the carrier-user exception is evidently not limited to the provision of channel distribution services. In that case, the telephone company, C & P, proposed to construct and maintain channel distribution facilities on telephone pole space leased by a cable operator, and to retain legal title to the facilities. The otherwise un- affiliated cable operator agreed to pay C & P for a ; cost of construction (over a period of four years), sume some of the risks and benefits of ownership, ad use the transmission system for substantially all of its useful life. The Commission approved the transaction, explaining that “[d]espite the broad language of [Note 1(a)] we do not believe that it prohibits C & P, the title owner of the facilities, from granting to [the cable operator] the tax benefits or other economic risks and benefits of ownership. C & P has no control over the cable provider or the cable service nor is there any common control over the two companies.” 57 Rad.Reg.2d 1008, 1008 (1985) (emphasis added). In the present case—but not in C & P itself—the Commission described all aspects of the C & P/cable operator relationship as covered by the “carrier-user” exception to Note 1(a), because the transactions “involved a proposed tariff of- fering comparable to traditional common carrier tariffed | channel service offerings.” 103 F.C.C.2d at 610 n. 21. Here is our difficulty: in light of C & P, the boundaries ) of the “carrier-user” exception are not clear. The trans- action in C & P included the transfer of certain attributes of ownership in channel distribution facilities, but never- theless fell within the “carrier-user” exception. The Com- mission has not adequately explained why a transfer of ; ownership rights in toto—as occurred in the present case —is treated differently.* ® The Ohio Bell Tel. Co., 1 FCC Red. 942 (1986), issued subse- quent to the final decision in this case, supports our impression on B 4la To be sure, the Commission cited factors other than the telephone pole leases and the construction agreements as evidence of affiliation between NITCO and Northwest. If it were apparent from the Commission’s opinions that these other factors created an affiliation without regard to the lease and construction agreements, and that the divestiture remedy would have been selected on the basis of those other factors standing alone, we would review that determination without remanding.? But the Com- mission’s opinions are not so clear. See supra p. 1208 and n.38. Since we are reviewing an administrative agency, and not a district court, we cannot affirm on grounds other than those presented by the Commission itself. See SEC v. Chenery Corp., 318 U.S. 80, 88, 63 S.Ct. 454, 459, 87 L.Ed. 626 (19483). We therefore, un- that the “carrier-user” exception has been considerably expanded. In Ohio Bell, the Commission approved a telephone company’s pro- posal to construct and maintain channel distribution facilities which (except for the “hub” portions physically located in the telephone company’s offices) were to be sold outright to the cable operator. The cable operator apparently agreed to make a one-time payment te the telephone company for the cable lines and periodic payments (at a rate filed with the Commission under tariff) for maintenance of the lines and use of the “hub” facility. In response to an argu- ment that the transaction violated the cross-ownership rules, the Commission stated only that “[t]he proposal does not materially differ from what other carriers have been authorized to construct. See, e.g.,C & P.” 1 FCC Red. at 944. In a footnote to the decision, the Commission distinguished the present case by noting that here NITCO and Northwest had been deemed affiliates “as a result of one person owning the telephone company and providing guaranteed repayment of loans to his son’s cable television company.” Jd. at 942 n. 4. Ohio Bell might then suggest that the Commission no longer believes that a telephone company creates an affiliation with a cable operator merely by constructing distribution facilities that are to be owned by the cable operator (if that was ever the Com- mission’s real position). TIt may well be that only sloppy draftsmanship is to blame for the apparent inconsistencies in the Commission’s decisions—but we cannot very well assume that. 42a fortunately, must prolong this dispute by remanding the case on this ground.* As we noted above, NITCO built three cable television systems, each of which was to be owned and operated by Northwest. NITCO did not obtain a section 214 cer- tificate from the Commission, and the FCC decided that NITCO was prohibited from constructing the channel distribution facilities without such authorization. Al- though the Commission’s brief maintains that NITCO would have needed a section 214 certificate even if North- west had not been an “affiliate” (the Commission’s po- sition on this issue during the proceedings below was somewhat unclear), FCC counsel acknowledges a lack of precedent for this interpretation. Since all parties agree that a certificate would be required if NITCO and Northwestern are properly determined to be affil- 8 NITCO and Northwest present two arguments challenging the validity of the Commission’s 1970 telephone/cable cross-ownership rules upon which the Commission was never given an “opportunity to pass,” and that we therefore cannot entertain. See 47 U.S.C. § 405 (1982); Washington Ass’n for Television & Children v. FCC, 712 F.2d 677, 681 (D.C. Cir. 1983). First, in a supplemental brief submitted one week before oral argument, petitioners argue that the definition of “affiliate” in the rules violates the free speech protections of the First Amendment. But merely because peti- tioners’ argument is constitutionally based does not, when the chal- lange is to an agency policy or regulation, entitle a party to bypass statutory exhaustion requirements. See Meredith Corp. v. FCC, 809 F.2d 863, 872-74 (D.C. Cir. 1987). Second, petitioners argue that the Commission’s definition of affiliate is inconsistent with section 613(b) of the Cable Communications Policy Act of 1984, 47 U.S.C. § 583(b) (Supp. IIT 1985). Petitioners claim this second argument was “squarely raised” before the FCC in a submission made on November 8, 1985 in connection with their September 16, 1985 petition for stay. J.A. 1840. We disagree. To be sure, petitioners did point out that they were not affiliates under a separate defini- tion found in the Act, but instead of arguing that the Commission was bound to apply the statutory definition, petitioners actually suggested that the Act did not even apply to this case because of the date it was enacted. 43a iated, we think it prudent to reserve judgment on this novel question. If on remand the FCC finds NITCO and Northwest to be affiliated we may not have to reach the issue. NITCO’s and Northwest’s final argument is that the Due Process clause of the Fifth Amendment guarantees them an evidentiary hearing before they can be de- prived of property by order of the Commission. We dis- agree. There can be no question that NITCO and North- west each received notice of the specific charges in the . proceedings below and each responded in writing on nu- merous occasions. See Cleveland Bd. of Educ. v. Louder- mill, 470 U.S. 532, 546, 105 S.Ct. 1487, 1495, 84 L.Ed.2d 494 (1985). Moreover, the Commission explained that it viewed the evidence of affiliation in the light most favor- able to petitioners. There was thus no material factual dispute before the agency, but rather, only disagreement as to the legal conclusions to be drawn from the version of the facts provided by petitioners. Due Process does not require a trial-type hearing under these circum- stances. See RKO General, Inc. v. FCC, 670 F.2d 215, 231-32 (D.C.Cir. 1981). This case is remanded for proceedings consistent with our opinion. So ordered. 44a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 85-1542 NORTHWESTERN INDIANA TELEPHONE COMPANY, INC., et al., Appellants v. FEDERAL COMMUNICATIONS COMMISSION, Appellee Petition for Review of Orders of the Federal Communications Commission Before: BORK and SILBERMAN, Circuit Judges, and FRIEDMAN *, Circuit Judge, U.S. Court of Appeals for the Federal Circuit. JUDGMENT This cause came on to be heard on the petition for review of certain orders of the Federal Communications Commission, and was argued by counsel. On considera- tion thereof, it is ORDERED and ADJUDGED, by this Court, that the orders on review herein are vacated and this case is remanded to respondent Commission for further proceed- * Sitting by designation pursuant to 28 U.S.C. § 291(a). 45a ings, all in accordance with the Opinion for the Court filed herein this date. Per Curiam FOR THE CouRT: /s/ George A. Fisher GEORGE A. FISHER Clerk Date: July 31, 1987 Opinion for the Court filed by Circuit Judge Silberman. 46a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT No. 85-1542 NORTHWESTERN INDIANA TELEPHONE COMPANY, INC., et al. V. FEDERAL COMMUNICATIONS COMMISSION Before: BORK and SILBERMAN, Circuit Judges, and FRIEDMAN *, Cireuit Judge, U.S. Court of Appeals for the Federal Circuit. ORDER [Filed November 17, 1987] Upon consideration of the motion of the Federal Com- munications Commission for clarification of judgment, the response thereto and of the reply, it is ORDERED, by the Court, that the motion is granted and this Court’s judgment of July 31, 1987 is amended as follows: In the second paragraph, beginning at line 1 and ending at line 2, delete the words the orders on review herein are vacated and The Clerk is directed to transmit a certified copy of this order to the Federal Communications Commission * Sitting by designation pursuant to 28 U.S.C. § 291(a). or 47a for inclusion in the mandate of the Court previously issued. Per Curiam FoR THE COURT: GEORGE A. FISHER Clerk By: /s/ Robert A. Bonner ROBERT A. BONNER Deputy Clerk 48a APPENDIX D BEFORE THE FEDERAL COMMUNICATIONS COMMISSION WASHINGTON, D.C. 20554 File No. E-84-1 IN THE MATTER OF COMARK CABLE FUND III, d/b/a CCI CABLEVISION, . Complainant v. NORTHWESTERN INDIANA TELEPHONE COMPANY, INC. and NORTHWEST INDIANA CATY, INC. d/b/a NORTHWESTERN INDIANA CABLEVISION, successor to RHYS MUSSMAN d/b/a NORTHWESTERN INDIANA CABLEVISION, Defendants MEMORANDUM OPINION AND ORDER Adopted: December 4, 1985; Released: December 9, 1985 BY THE COMMISSION: COMMISSIONER PATRICK DISSENT- ING IN PART AND ISSUING A STATEMENT. 1. Before the Commission for consideration is a “Pe- tition for Stay Pendente Lite” (“Petition”) filed on September 16, 1985 jointly by Northwestern Indiana 49a Telephone Company, Inc. (“NITCO”) and Northwest Indiana CATV, Ine. (“Northwest Cable’), (referred to jointly hereinafter as “Defendants”). Defendants seek a stay of our order in Comark Cable Fund III, 100 FCC 2d 1244 (“Order”), reconsideration denied, Memoran- dum Opinion and Order, FCC 85-475, released August 23, 1985, appeal docketed, No. 85-1542, D.C. Cir., August 29, 1985 (“Reconsideration Order’) in the above-cap- tioned proceeding.' Background 2. The instant proceeding was initiated on October 12, 1983 when CCI filed a complaint, pursuant to Sec- tion 208 of the Communications Act, against NITCO and Northwest Cable’s predecessor, Rhys Mussman d/b/a Northwestern Indiana CableVisicn. The gravamen o* CCI’s complaint was that Defendants were affiliated companies engaged in discriminatory and anticompetitive conduct in violation of the Act and our telephone/cable television cross-ownership rules. More particularly, CCI alleged, inter alia, that NITCO was constructing and operating a cable television system in Hebron and con- structing a cable television system in DeMotte, Indiana, 1 Also before us is a petition for leave to file an opposition to the Petition, filed by Comark Cable Fund III d/b/a a Cablevision (“CCI”) on September 26, 1985. Comments filed by CCI on Sep- tember 16, 1985 with respect to an “Emergency Motion for Stay Pendente Lite” filed by Defendants with the United States Court of Appeals for the District of Columbia Circuit of September 23, 1985 (“Emergency Motion”); and a motion for leave to respond and a response to such comments, filed by Defendants on November 8, 1985. Following a private settlement reached by the parties, CCI requested dismissal of both its complaint and an opposition to the Petition it had filed on September 26, 1985 (“Opposition’’). In the order granting those requests, Defendants were informed that, notwithstanding the private settlement with CCI, they con- tinued to beltound by our orders in this proceeding. Order, Mimeo No. 1183, at! para. 3, released December 2, 1985. Despite the settle- ment, we must still address the issues raised in Defendants’ Petition. 50a both within its telephone service area, without Commis- sion authorization and to CCI’s detriment, in violation of Section 214(a) of the Act and Section 63.54 of the Commission’s Rules, 47 U.S.C. §214(a) and 47 C.F.R. § 63.54, respectively. In addition to seeking the issu- ance of an order to show cause why NITCO and North- west Cable should not be ordered to cease and desist from such alleged violations, CCI also sought compen- satory and punitive damages. 3. In our March 18, 1985 Order, we found that De- fendants had violated and were acting in continuing violation of Section 63.54 of our telephone/cable television cross-ownership rules and Section 214 of the Act be- cause they had constructed cable television distribution facilities within NITCO’s telephone service area in He- bron, DeMotte, and Lakes of the Four Seasons, Indiana, without having petitioned the Commission and obtained a waiver of such rules and approval of an application to construct facilities. We directed that these, as well as any other unauthorized cable television system facili- ties, be divested by September 18, 1985. We also noti- fied NITCO of its apparent liability for a $20,000 for- feiture penalty. We further ordered Defendants and CCI to undertake good faith efforts to negotiate a settle- ment of CCI’s damage claims.’ 4. NITCO sought reconsideration of our Order, argu- ing that we had erred in finding that Defendants were 2 Order, at 1259. CCI formerly operated cable television sys- tem in Hebron, Indiana, which it sold to First PIC Acquisition Corporation. CCI’s complaint alleged that Defendants were affiliated companies acting anticompetitively and that it was damaged by such anticompetitive behavior. In his capacity as NITCO’s Execu- tive Vice President, Rhys Mussman conducted pole attachment negotiations with CCI and its predecessor-in-interest even though he, himself, had been directly engaged in efforts to secure cable television franchises in the same communities for his own cable television operations, wncalet sntneptammnstenscith se 5la affiliated companies within the meaning of Section 63.54 of our Rules. NITCO also argued that Rhys G. Muss- man * should be allowed to continue providing video pro- gramming to viewers in Hebron and Lakes of the Four Seasons.* In denying reconsideration, we confirmed that the divestiture required by our Order applied not only to NITCO, but to Northwest Cable and Rhys Mussman. We also directed NITCO to pay the $20,000 forfeiture for which we had found it liable. 5. Public notice of our Reconsideration Order was given on August 20, 1985. The next day, officials of our Common Carrier Bureau’s Enforcement Division met with counsel for the parties to determine what steps, if any, Defendants had taken and planned to take to comply with the good faith settlement efforts and divestiture re- quirements mandated by our Order. Counsel for Defend- ants advised that, NITCO planned both to appeal the Commission’s Reconsideration Order and to request that the Commission stay its Order. The parties were advised that, based on precedent, the possibility of favorable ac- tion on such a stay motion by the Commission was un- likely but could be enhanced if the cable systems in ques- tion were placed in a trust arrangement pending a final court decision on NITCO’s planned appeal. This was intended to permit Defendants to maintain the status quo, an equivalent financial position, but not to benefit 3 Rhys C. Mussman is the president and sole officer, director, and shareholder of Northwest Cable which does business under the name Northwestern Indiana Cablevision. He operated the com- pany as an individual proprietorship under the same name before its incorporation in April of 1983. Mr. Mussman is the son of Robert G. Mussman, NITCO’s president, chairman and controlling stockholder, and served as NITCO’s Executive Vice President prior to 1983 and as a consultant to NITCO until May 28, 1985 with essentially the same salary and benefit package he received under his prior title. 4 Service in DeMotte has not yet commenced, although the sys- tem has been largely constructed. 52a from their continuing illegal actions in the event their appeal was unsuccessful. On the other hand, a trustee- ship would permit the benefits of operation to flow back to Defendants in the event they were successful on appeal. With the assistance of the Bureau, the parties subse- quently met several times and attempted to reach an agreement upon terms of an interim trust arrangement which would protect the interests of all those affected, including the public, pending a judicial determination on the merits of Defendants’ pending appeal of our Order. However, such efforts were temporarily suspended at a September 9 meeting of the parties with Bureau officials when Northwest Cable’s counsel advised that it was pur- suing a sale of its cable systems to an alleged unaffiliated entity and the prospect of a sale appeared imminent. 6. On September 12, 1985, Defendants filed a joint motion seeking a thirty day extension, until October 18, 1985, of the September 18, 1985 date by which they had to divest cable television facilities they constructed with- out FCC authorization and in violation of our cross- ownership rules. Further, Defendants sought to extend, also until October 18, 1985, the date by which we had ordered NITCO to pay a $20,000 forfeiture. Although the Bureau agreed with CCI’s characterization of such motion as an eleventh-hour plea, it granted a short exten- sion of the divestiture date until September 30, 1985, solely in order to enable further continuing efforts to con- summate a trust arrangement protecting the rights of all parties and those of the public, pending a final judicial determination of this matter. Further, the Bureau ex- tended the date by which NITCO was to pay the for- feiture we had ordered until September 30, 1985 as well.® 5 Memorandum Opinion and Order, released September 18, 1985, unreported. The September 30 deadlines were further extended by the Bureau to preserve the status quo pending our action on the instant Petition and action by the Court upon the Emergency Mo- tion. Letter to Russel D. Lukas and David L. Nace from Chief, Common Carrier Bureau, dated September 24, 1985. 0 we eRh, etc ee 53a Counsel for the parties subsequently met with Bureau staff in further efforts to negotiate a satisfactory interim trust agreement. However, such efforts were finally abandoned on September 20, 1985 when counsel for Northwest Cable advised the Enforcement Division staff that there was little, if any, likelihood, that a trust agree- ment satisfactory to his client could be negotiated. Lue Defendants’ Petition for Stay 7. In support of their Petition for stay of our Order, Defendants contend: 1) that they need not show that they will prevail on the merits of their appeal; 2) that Northwest Cable will suffer irreparable harm if the re- quested stay is not granted; 3) that no harm will result to other interested parties if the stay is granted; and 4) that the public interest would be served by issuance of the stay in order to preserve a continuity of cable tele- vision service to approximately 1,300 residences. In argu- ing that they are likely to obtain a reversal of our Order, Defendants contend, inter alia: 1) that our cross- ownership rules are overbroad; 2) that we engaged in unlawful summary fact-finding; and 3) that we invoked our Rules inconsistently. 8. On the other hand, CCI maintained that the Peti- tion must be denied because, under applicable Commis- sion and court decisions, Defendants have not justified the stay which they have requested.* In particular, CCI argued that the public interest is disserved every day that Northwest Cable continues to operate since Defendants will continue to profit from their anticompetitive behav- ior. It further argued that Defendants’ chance of success on appeal is extremely remote. Finally, CCI contended that, during this two-year old proceeding, Defendants have 6 CCI requested leave to file its Opposition three days late due to confusion over the impact on Commission action of the Emergency Motion before the U.S. Court of Appeals. Defendants did not oppose such request. 54a shown no deference to our jurisdiction or mandate and have not been dealing with the Commission in good faith. Accordingly, CCI argued that Defendants cannot be trusted, have “unclean hands’, and are not worthy of spe- cial equitable relief.’ Discussion 9. In determining whether or not to grant a stay re- quest, the Commission generally considers the following four factors: (1) Has the petitioner made a strong show- ing that it is likely to prevail on the merits of its appeal? (2) Has the petitioner shown that without the requested relief, it will be irreparably injured? (3) Would issuance of a stay substantially harm other parties interested in the proceedings? (4) What action is in the public inter- est? Virginia Petroleum Jobbers Association v. Federal Power Commission, 259 F.2d 921 (D.C. Cir. 1958); Washington Metropolitan Area Transit Commission v. Holiday Tours, Inc., 559 F.2d 841 (D.C. Cir. 1977); Big Valley Cablevision, Inc., 85 FCC 2d 973, 978 (1981). These issues need to be explored separately for the mat- ters of divestiture and forfeiture. Holiday Tours indicates that the first of these factors may be more liberally con- strued if the movant has made a substantial case on the merits and “the other three factors strongly favor in- terim relief’. 559 F. 2d at 843. After examining De- fendants Petition in light of these criteria, we find, with respect to divestiture, that, while their argument has little chance of success on appeal and that granting their motion, as filed, would harm both other interested parties and the public interest, nonetheless, it is possible that Defendants might suffer irreparable injury if divestiture were completed before the unlikely event that they were successful at the Court of Appeals. Our responsibility, therefore, lies in finding a mechanism to protect the pub- lic interest and minimize injury to other parties while 7 Opposition at 14-19. 55a Defendants are permitted to exhaust their legal remedies. Only by placing the cable television facilities subject to our divestiture orders in trust can the interests of all parties, including the public, be protected. By so doing, Defendants will not be required to prematurely divest themselves of their cable systems if they are ultimately successful on appeal; Defendants will not be able to profit from continued anticompetitive and illegal activities should they lose on appeal;* and the public will not be deprived of continual cable television service. Accord- ingly, with respect to divestiture, we will stay the effec- tiveness of our Order subject to the imposition of the interim trust conditions specified in the Appendix hereto. 10. Turning to the matter of the forfeiture, we find Defendants’ position to be unpersuasive. While all the public interest arguments relating to divestiture remain relevant, there is not a countervailing argument of ir- reparable injury. Defendants have never alleged that they lack the financial resources to pay the forfeiture, and in the event they are successful on appeal, the funds can, of course, be promptly returned. Therefore, the petition for stay will be denied with respect to the forfeiture. Likelihood of success on the merits 11. Defendants contend that our telephone/cable tele- vision cross-ownership rules are overbroad and do not provide a “clear and complete statement which will give adequate prior notice of a standard by which conduct can 8 See Appendix at para. 9 where trust conditions we have ordered require all profits accruing during the trusteeship to be donated to a charitable organization should Defendants lose on appeal. A similar result was required in CC Docket No. 20939 by Memoran- dum Opinion and Order, FCC 82-484, at para. 5, released November 3, 1982, where we granted continuing authority to operate certain radio facilities conditioned, inter alic, upon the distribution of certain profits to a charitable organization. See Pass Word, Inc., 93 FCC 2d 1284, 1285 (1983). 56a be measured”, citing Pressley v. FCC, 437 F. 2d 716, 721 (D.C. Cir. 1970). This position is utterly without merit. In Pressley, the Court expressed “some feeling of un- ease” that we had never instituted any rulemaking pro- ceeding to provide a clearer guide to the kinds of conduct which would be regarded as disqualifying under our policy concerning the filing of so-called “strike” applications. On the other hand, our telephone/cable television cross- ownership policies, rules, and guidelines were adopted in 1970 pursuant to a rulemaking proceeding, long before Defendants commenced their unlawful construction. Thus, Defendants had adequate prior notice of the ap- plicable standard. The attribution standards applicable under Section 63.54 of our Rules, 47 C.F.R. § 63.54, are clearly defined and specific examples delineated in Note 1 to that rule. Further, under Section 63.56 and 63.58 of our Rules, waiver of otherwise prohibited relationships may be granted for good cause shown in a duly filed application pursuant to Part 63 of our Rules. Our telephone/cable television cross-ownership rules have been judicially affirmed® and have withstood the test of time since they were first promulgated more than fifteen years ago. Further, our rules, for the most part, were recently codified with the adoption of the Cable Communications Policy Act of 1984, 47 U.S.C. § 601, et seq., (“Cable Act”). See Title VI of the Act, particularly Section 613 (b). We consciously chose to retain the current attribu- tion rules, as recommended by the Department of Justice and numerous cable interests, when we implemented the Cable Act. We found nothing in the Cable Act or its legislative history to indicate that Congress believed any change in this respect would be desirable.” ® General Telephone Co. of the Southwest v. U.S., 449 F.2d 846 (5th Cir. 1971). 10In the Matter of Amendment of Parts 1, 63, and 76 of the Commission’s Rules to Implement the Provisions of the Cable Communications Policy Act of 1984, FCC 85-179, released April 19, 1985, at para. 58; 58 R.R. 2d 1, 16-17. ——— errr 57a 12. Furthermore, our finding that Defendants were affiliated companies within the meaning of Section 63.54 of our Rules is supported by substantial, uncontradicted evidence of record. Such evidence was submitted, for the most part, by Defendants themselves. Because Defend- ants were and continue to be, in fact, “affiliates” within the meaning of Note 1(a) to Section 63.54, they have and are engaged in anticompetitive behavior which our cross- ownership rules were designed to preclude. Contrary to Defendants’ argument, we did not simply presume “con- trol” or an “affiliate” relationship within the meaning of Section 63.54 from the fact of the father-son relationship between Robert and Rhys Mussman. In enforcing such rule, we properly disregarded the separate corporate veils of NITCO and Northwest Cable because of prohibited direct and indirect business and financial relationships between Defendant corporations, in addition to the busi- ness and financial relationships, irrespective of their fa- milial relationship, between Robert Mussman and Rhys Mussman, the principals of NITCO and Northwest Cable, respectively. As we summarized at para. 3 of our Recon- sideration Order, our Order found that: Defendants had been involved in a number of direct and indirect relationships, each of which was and continues to be prohibited by Section 63.54 of our Rules. Such relationship included, inter alia: (a) guarantees of substantial bank loans to Northwest Cable by Robert Mussman, NITCO’s chairman, president and controlling stockholder; (b) Robert Mussman’s guarantee of an indem- nity agreement by his son, Rhys Mussman, for Northwest Cable concerning litigation Rhys Mussman instituted against the Town of Hebron with respect to cable television; (c) NITCO’s retention of Rhys Mussman on its payroll, including employee benefits, after his 58a resignation as its Executive Vice President from January 1, 1983 through a period when he was not receiving any salary as president of North- west Cable, but while he was active in cable management; (d) Robert Mussman’s lease of office space to Northwest Cable; (e) Robert Mussman’s acceptance or acquies- cence in NITCO’s subleasing of his property to Northwest Cable for the site of the headend of its Hebron cable television system ; (f{) agreements by which NITCO constructed and agreed to maintain cable television facilities for Northwest Cable in Hebron, DeMotte, and Lakes of the Four Seasons, Indiana; and (g) lease agreements by which NITCO fur- nished space on is poles for Northwest Cable’s cable television systems in those communities. While Defendants acknowledge these relationships, they have never sought waiver of Section 63.54 with respect to any of them.” 13. Although our Order was supported by factual findings based upon evidence in the record submitted largely by Defendants, we did not find that we could agree with the ultimate legal conclusions Defendants ar- gued should have been drawn from such evidence. Nor did we find that we could rely upon every factual repre- sentation made by Defendants or their principals. We note, in this connection, that Rhys Mussman made in- accurate representations either to this Commission or to public officials of the Town of Hebron, Indiana. Specifi- cally, Mr. Mussman represented to the Commission that 11 These facts were all ascertained from Defendants’ filings and were not contested. See, e.g., Amended Answer of NITCO filed May 18, 1984. 59a his father, Robert Mussman, had never served as Secretary-Treasurer or as any other officer of any cable company in which he, Rhys Mussman, was involved. However, speaking on behalf of his company (i.e., Rhys G. Mussman d/b/a Northwestern Indiana CableVision) at a public meeting before the Board of Trustees of the Town of Hebron on April 28, 1982, Rhys Mussman repre- sented that his father was then Secretary-Treasurer of his cable company.** Further, while the record is clear that Rhys Mussman, as President of Northwestern In- diana Cablevision submitted cable television proposals to public officials of Hebron and DeMotte in 1980,'* he initially represented to us that it was not until February 1, 1983 that he began doing business under that name.” 14. Contrary to Defendants’ further contention that our orders were based upon disputed factual allegations re- quiring a full evidentiary hearing to resolve, our orders were based upon uncontroverted evidence which, as already noted, was furnished largely by Defendants themselves."® 12“Response to Consolidated Reply to Amended Answers of Northwestern Indiana Telephone Company, Inc. and Northwest Indiana CATV, Inc.”, filed July 9, 1984, at para. 4; see also “Reply to Opposition to Petition for Reconsideration of Memorandum Opinion and Order and Notice of Apparent Liability for Forfeit- ure”, filed by NITCO on May 17, 1985, at para. 29. 13 “Consolidated Reply to Amended Answers of Northwestern Indiana Telephone Company, Inc. and Northwest Indiana CATV, Inc.”, filed by CCI on June 11, 1984, Exh. A, at 1 and 6. 14 Amended Answer of Northwest Cable, Exh. 7 and 10. 15“Answer of Northwest Indiana CATV, Inc.” filed November 28, 1983, at paras. 2 and 6. 16 It should be emphasized that Defendants did not request a full evidentiary hearing until long after our Order was issued. Letter from Pamela L. Gist to Howard M. Wilchins, Deputy Chief, En- forcement Division, dated July 31, 1985. Such request was denied. Letter to David L. Nace and Pamela L. Gist from Howard M. Wilchins, dated August 21, 1985. For Defendants to come in at 60a In any event, it is black letter law that when the decision- ally-significant facts in a complaint proceeding pursuant to Section 208 of the Act, 47 U.S.C. § 208, are undisputed and only the legal conclusions derived therefrom are controverted, we have ample discretion, and our practice almost universally has been, to resolve the matter upon the basis of the evidence of record without need of resorting to time-consuming and costly full evidentiary proceed- ings.'’ Section 208 provides, in pertinent part, that if any common carrier subject to this Act does not satisfy a complaint served upon it by the Commission within the time specified or there is reasonable ground for in- vestigating the complaint, “it shall be the duty of the Commission to investigate the matters complained of in such manner and by such means as it shall deem proper” (emphasis added).'* Our Order was issued pursuant to, inter alia, Sections 208 and 214(a) of the Act.’® As CCI correctly noted in opposing Defendants’ untimely request for a hearing, neither section mandates any particular form of proceeding for all cases. Under the applicable this late date with such an argument is unfounded in principles ef law and equity and appears solely intended to obfuscate the real issues in this proceeding. 17 See Bell Telephone Co. of Pennsylvania v. FCC, 503 F.2d 1250, 1266 (3d Cir. 1974), cert. denied, 422 U.S. 1026, reh. denied 423 U.S. 886 (1975); cf., United States v. FCC, 652 F.2d 72, 90-91 (D.C. Cir. 1980) (en banc); Southwestern Operating Co. v. FCC, 351 F.2d 834, 835 (D.C. Cir. 1965); Anti-Defamation League v. FCC, 403 F.2d 169, 171 (D.C. Cir. 1968), cert. denied, 394 U.S. 930 (1969) ; Mobilfone of Northeastern Pennsylvania, Inc. v. FCC, 682 F.2d 269, 271 (D.C. Cir. 1965); Bilingual Bicultural Coalition on Mass Media, Inc. v. FCC, 595 F.2d 621, 630 and n. 34 (D.C. Cir. 1978) (en banc); See also 47 U.S.C. 154(j) and FCC v. Schreiber, 881 U.S. 279, 289 (1965); FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 188 (194). 18 See also 47 U.S.C. § 154(i) and (j); Bunker-Ramo v. Western Union Telegraph Co., 25 FCC 2d 691 (1970). 19 Order at 1259. 6la statutory provisions, we had discretion to undertake the enforcement action in this matter by means other than a costly and prolonged full evidentiary hearing before an administrative law judge.*® We note, in this connection, that in asking that CCI’s complaint be dismissed, De- fendants did not contend that the critical legal issue raised therein, 7.e., whether they were affiliated companies within the meaning of our cross-ownership rule, could be resolved only after a full evidentiary hearing, rather than upon uncontroverted evidence in their pleadings. On the 20 Cf., Heckler v. Chaney, U.S. ——, 105 S. Ct. 1649, 84 L. Ed. 2d 714 (1985). As we said in Department of Defense v. AT&T, 80 FCC 2d 287 (1980) : In the absence of a per se statutory directive, Section 554 of the Administrative Procedure Act, 5 U.S.C. § 554, does not automatically require a trial-type hearing. JTT World Com- munications, Inc. v. FCC, 595 F.2d 897, 900-01 (2d Cir. 1979). When Section 208 is construed in conjunction with the Act’s general procedural authorization in Section 154(j) empower- * ing the Commission to “conduct its proceedings in such a manner as will best conduce to the proper dispatch of business and to the ends of justice’, it is clear that the decision of when trial-type hearings are necessary is one which lies within the discretion of the Commission. Bell Telephone Co. of Penn- sylvania v. FCC, 503 F.2d 1250, 1266 (1974); West Michigan Telecasters, Inc. v. FCC, 180 U.S. App. D.C. 39, 42, 396 F.2d 688, 691 (1968). Moreover, our practice with Section 208 com- plaints has consistently been to resolve the issues on the basis of the written submissions if at all possible. * * * . . . Where, as here, the Commission has been provided with \ sufficient information upon which to base its decision such that the receipt of additional evidence would serve no useful pur- pose, a trial-type hearing is not required. City of Lafayette, La. v. Securities and Exchange Commission, 454 F.2d 941 (1971), affirmed, Gulf States Utilities Co. v. Federal Power Commission, 411 U.S. 747 (1973). The evidence submitted was sufficient for us to comprehend the [facts], and all that re- mained was the need for a Commission interpretation of law based upon the facts submitted. 80 FCC 2d at 289-90. —EE=a_xaLgLSLw— 62a ecntrary, in opposing CCI’s motion for pre-designation discovery, Defendants represented their willingness to co- operate to the fullest extent to help us resolve CCI’s com- plaint upon the latter basis.*‘ Furthermore, in finding willful violations of the Act and our cross-ownership rules, we did not need to nor did we find that Defendants deliberately intended to violate those rule. In order to find liability for forfeiture, it was necessary to find, as our Order did, only that “they knew they were doing the actions in question .. .” Reconsideration Order at para. 17. Accordingly, we find no necessity for further prolong- ing this proceeding with an evidentiary hearing to de- termine whether Defendant’s conduct was intended to ensure compliance with our cross-ownership rules, as they contend, rather than intended to circumvent those rules, as CCI argued. 15. Defendants’ reliance upon Chesapeake and Potomac Co., FCC 85-48, released January 30, 1985, recon. denied, FCC 85-279, released May 30, 1985 (“C&P”) is equally misplaced. Reconsideration Order at para. 14. C&P in- volved proposed tariff carrier-customer relationships to be covered by an FCC tariff filed by the carrier pur- suant to Section 203 of the Act which would govern the business and financial relationships with its customer which were there involved. Such proposal was granted upon a duly-filed application seeking appropriate authority pursuant to Section 214(a) of the Act and our cross- ownership rules. NITCO, on the other hand, has never filed an application under Section 214 of the Act for authority to construct the subject cable television facili- ties within its telephone operating area. Defendants recognize the need for Section 214 authority when a tele- phone company constructs cable television facilities for its own direct or indirect benefit. (Petition, at n. 22). 21 See Answers of Defendants filed November 28, 1983 and their “Joint Opposition to Motion for Orders to Make Answers More Definite and Certain and for an Order Authorizing Pre-Designation Discovery”, filed December 28, 1983. 63a Indeed, in at least this one respect, this constitutes an admission on the record that they have violated the Com- munications Act. In this case, NITCO obviously had an interest in what cable television company or companies could become potential competitors for its telecommunica- tions business. Unlike the telephone company in C&P, supra, and Eagle II, infra, Defendants here completely ignored the Section 214 filing required under our cross- ownership rules and continue to do so up to this day. 16. Furthermore, we found no merit in NITCO’s argu- ment that, under Section 2(b) (2) of the Act, 47 U.S.C. § 152(b) (2), it is merely a “connecting carrier” and therefore not subject to Section 214 of the Act.** Never- theless, telephone companies which are “connecting car- riers” with respect to their telephone operations become subject to Section 214 when they construct and operate, directly or indirectly, cable television facilities.** Even 22 A telephone company engaged in interstate communication solely through physical sonnection with the facilities of another carrier not directly or indirectly controlling or controlled by, or under direct or indirect common contro! with such telephone com- pany is a “connecting carrier”. Such carriers are exempt from the provisions of, inter alia, Section 214 of the Act. See 47 U.S.C. §$§ 152(b) (2) and 158 (u). 23 Because broadcast television signals do not recognize state boundaries, a cable television system transmitting such signals constitutes part of an interstate “line” within the meaning of Sec- tion 214(a) of the Act when constructed by a telephone common carrier subject to our jurisdiction, such as NITCO. See General Telephone Co. of the Southwest v. U.S., supra, 449 F.2d at 859, n. 9; Section 214 Authorization, 98 FCC 2d 354 and 356 at n. 3 (1984); ef. General Telephone Company of California, 18 FCC 2d 448, 460-61 (1968), aff'd, 413 F.2d 390, cert. denied, 396 U.S. 888 (1969); Dimension Cable TV, Inc., supra, 25 FCC 2d at 527-28; Section 214 Certificates, 22 FCC 2d 746, 751 (1970). The need for certification pursuant to a Section 214 application is still necessary even in so-called “rural” areas of a telephone company’s telephone service area. Eagle Communications, Inc., FCC 85-362, released July 1985, petition for reconsideration filed August 19, 1985 (“Eagle III”) at n. 5. ieee 64a if, arguendo, Section 214 were inapplicable in this case, which it is not, Defendants nevertheless are subject to our cross-ownership rules and, inter alia, sections 208, 209, 503(b) and 613(b) of the Act. Reconsideration Order, at n.24; Com Services v. Murraysville Telephone Co., FCC 85-553, released October 17, 1985. 17. In light of the foregoing discussion, we conclude that our finding that Defendants were affiliated com- panies within the meaning of Section 63.54 is supported by substantial evidence and was neither over-broad nor inconsistent with any prior or contemporaneous FCC deci- sion.** Defendants have failed to substantiate their con- tentions to the contrary. On the record before us in this proceeding, we also find no merit in Defendants’ further contention that NITCO is not subject to, inter alia, Sec- tions 206 and 207 of the Act.*° We conclude, therefore, that Defendants have shown neither a likelihood of suc- cess nor a substantial case on the merits. Irreparable injury 18. Contrary to Defendants’ argument, Northwest Cable is not faced with an either/or choice of selling its facilities or shutting down. The trust arrangement is a viable option to preserve Northwest Cable’s rights pend- ing appeal and also maintain the status quo with respect to cable television service to some 1,275 Northwest Cable customers in Hebron and Lakes of the Four Seasons, Indiana who may wish to continue to subscribe to its service, whether or not alternative cable service may be 24 Defendants’ reliance upon Hawaiian Telephone Co., 16 FCC 2d 677 (1986), is unavailing. A limited stay was there granted in light of then pending appeal of fundamental! jurisdictional issues deter- mined in our seminal Docket No. 17333 decision. 25 Under Sections 206 and 207 of the Act, 47 U.S.C. §§ 206 and 207, any common carrier subject to the Act is liable for conse- quential damages when it violates the Act. 65a available in those communities.** Defendants rely upon our order in Eagle Telecommunications, Inc., FCC 84-191, released May 8, 1984 (‘Eagle II”) where, unlike the instant proceeding, the option of an interim trust ar- rangement was not considered. In Eagle II, we were concerned with whether to stay an order requiring di- vestiture of cable television facilities constructed without prior authorization in violation of our cross-ownership rules by Eagle Telecommunication, Inc. (“ETI”), a tele- phone common carrier, for its affiliated cable television company. We concluded that, if ETI were ultimately to win on appeal: “it would then be in the position of having to reconstruct facilities and reestablish customer relations. Because of the possibility of other cable tele- vision systems commencing operations in this area, it is not clear that ETI would necessarily be able to reestab- lish its present position... .”*" Accordingly, we con- cluded that requiring ETI to divest its cable television facilities entailed “the possibility of irreparable injury to ETI... .”* We found that a stay of such divestiture requirement would preserve the relative positions of ETI and an independent cable television system already within ETI’s proposed cable television service area. We also found a public interest benefit in continued service to customers then receiving cable television service over ETI’s facilities. Based on our evaluation of the relative harms to the parties and an analysis of the public in- terest, we stayed our divestiture order but at the same time reaffirmed that no further construction could be undertaken.” *6 First PIC Acquisition Corporation, CCI’s successor-in-interest, is operating a cable television system in Hebron. 27 Eagle Ii at para. 9. 28 Id. 29 Jd. 66a 19. We cannot accept Defendants’ apparent argument that, because a trust arrangement may also have been possible in Eagle IJ but was not there considered, that somehow precludes us from considering such arrange- ment here. The interim trust ordered herein is designed to preserve the status quo. In our view, the status quo is maintained by providing a ceiling on the damages re- sulting from Defendants’ anticompetitive behavior should they lose on appeal: providing for full reinstatement of investment and profits should Defendants prevail on the merits; and ensuring continued service to those mem- bers of the public currently receiving service from North- west Cable. The thrust of Defendants’ principal objec- tions to a trust arrangement appears to be that no fur- ther system construction is contemplated thereunder. However, we note again that in Kagle II, upon which defendants rely, we likewise did not permit further con- struction during the pendency of the stay. Fundamen- tally, the purpose of a stay, with or without a trust ar- rangement, is to preserve the status quo; or “the exist- ing state of things at any given date’.®” Clearly, for the Commission to allow further construction pending resolu- tion of the merits of Defendants’ appeal would not be preserving “the existing state of things’; rather it would exacerbate a situation which we already believe to be without legal foundation and would be in contravention of our public interest responsibilities. To the contrary, placing the cable systems which we have ordered divested in the trust arrangement, for which we provide herein- after, will enable Defendants’ interest to be protected pendente lite, as well as the interests of the public which we are mandated to preserve. 20. Just as Defendants have not shown that the trust ordered herein places them in the same position in which ETI would have been placed had we denied its stay re- 30 Black’s Law Dictionary, 1581 (Revised 4th ed. 1968). 67a quest, Defendants also have not shown that, without the reques [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0369%3A2. Public record. Not legal advice.