Appendix — Northwestern Indiana Telephone Co. v. Federal Communications Commission
Supreme Court brief1990
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Court, U.S,
FILED
SEP 25 1989
JOSEPH F. SPANIOL, yp
IN THE
Supreme 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
BREE 2D
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001
TABLE OF CONTENTS
Appendix A
Court of Appeals decision denying petition for re-
view dated April 11, 1989 .....................22...... eee
Court of Appeals order denying petition for re-
hearing dated June 27, 1989 _._...W0....22.2........eeee-.-.-
Court of Appeals order denying petition for re-
hearing en banc dated June 27, 1989 ....................
Court of Appeals judgment denying petition for
review dated April 11, 1989 .......000222
Appendix B
Federal Communications Commission order reaf-
firming prior Commission order on remand dated
RS TE III seo. ies acta a cchnisenneanahepeiagmuainhcdadbineedagiiedaivnit
Appendix C
Court of Appeals decision ordering remand dated
PRINCE NIT ITT Coe Or 7 NDOT RON Te AF OR
Court of Appeals judgment ordering remand dated
bE 7D ee Va Ry aCe ae Valine
Court of Appeals order granting clarification
ee I Ot
Appendix D
Federal Communications Commission order im-
posing forfeiture and granting stay pendente lite
SERENE Os Se
Appendix E
Federal Communications Commission order deny-
ing reconsideration of memorandum opinion and
order and notice of liability dated August 23,
SI > sicnccchisipetialastingcatieih cs bean baniiesiansiisaiataactais
Page
48a
a
Appendix F
Federal Communications Commission memoran-
dum opinion and order and notice of apparent
liability for forfeiture dated March 18, 1985........
Appendix G
BRE aarti bode TAS.
Appendix H
Oral argument of Danie] M. Armstrong on behalf
of the Federal Communications Commission and
United States of America before the Court of Ap-
peals dated March 6, 1989 200020....eccccccee cece
Appendix I
Federal Communications Commission memoran-
dum opinion and order granting motion to dis-
miss cellular radio applications dated July 28,
RUN ccccassaccsnssrinscnignctinsdiepiadanalaaiaiae ia
Appendix J
Federal Communications Commission notice of
dismissal of application and motion to dismiss
application dated July 7, 1989 —......00...0...
Appendix K
Defendants’ reply to supplement to plaintiffs’
memorandum of points~and authorities dated
yp. 2 SS Semana sik Oe 8
Page
108a
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 CATY, 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,
INnc., 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.
Ze
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, Ine. (‘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, except only the carrier-user
relationship.” 47 C.F.R. § 63.54 Note 1(a) (1988).
When this case made its first appearance 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 betweer Rhys Mussman and 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 I, 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. N/JTCO
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 affiliated, 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 cimilarly-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 NI7CO’s Execu-
tive Vice-President at the same time that he operated Northwest
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 M»*sman 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 1,
824 F.2d at 1208 & 1209 n. 4. This resolution constitutes
the law of the case and, as such, represents a complete
\
Ta
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, 418 F.2d at 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 @xplained 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 intcrest 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 a!l 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.
9a
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 proiibitions 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 (2dCir.1981), cert. denied, 459 U.S.
828, 108 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 U.S. 38, 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).
as ce ence
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
238, 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 pe’ tioners’ 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
V.
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
15a
UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 88-1521
NORTHWESTERN INDIANA TELEPHONE COMPANY, INC.
and NORTHWEST INDIANA CATYV, INC.,
. Petitioners
FEDERAL COMMUNICATIONS COMMISSION
and UNITED STATES OF AMERICA,
Respondents
U.S. TELEPHONE ASSOCIATION, et al.,
Intervenors
Before: Wald, Chief Judge; Robinson, Mikva, Ed-
wards, Ruth B. Ginsburg, Silberman, Buckley,
Williams, D.H. Ginsburg and Sentelle, Circuit
Judges
ORDER
[Filed June 27, 1989]
Petitioners’ suggestion for rehearing en banc has been
circulated to the full Court. No member of the Court
requested the taking of a vote thereon. Upon considera-
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
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
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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.
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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,
Vv.
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
hy ome? hey”
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, Ine: (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.
3 Comark 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-
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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... .
5 47 U.S.C. § 214(a). See note 38, infra.
® See 100 FCC 2d at 1253 n.37.
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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 concluded 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. § 68.01, 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.
9 Jd. at 1209.
10 Jd.
11 Jd. at 1210.
12 Jd. at 1210-11.
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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).
14 47 C.F.R. § 63.54 n.1(a).
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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;'? 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-
15 See, e.g., our Orders, 100 FCC 2d at 1251, 103 FCC 2d 613 at
n.29, and para. 11, infra.
16 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.
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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 * 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. Jd., 100 FCC 2d
at 1248. The fact that the contracts were oral, rather than written,
is an important indication that the relations! ips were not the sort
of arms-length transactions that can be expected of truly independ-
ent entities.
22 Td.
28 The defendants admit that this representation was made, but
they claim that it was false.
24 Id., 100 FCC 2d at 1251.
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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
Beil 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
2% Court’s Order, 824 F.2d at 1210.
26 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 with 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.27 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
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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.
30 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,” 1.e., solely through physical 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 to
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 bréadband 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 company “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
82 Section 214 Certificates, 22 FCC 2d at 751 (1970). See Orders,
100 FCC 2d at 1255; 103 FCC 2d at 611, n.24.
83 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, outside
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)
35 Section 63.08(b) of our Rules provides as follows:
(b) If a nondominant common carrier and its affiliates are
not affiliated with an exchange telephone common carrier, the
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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
rnondominant 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).
37 See, e.g., Letter from Russell D. Lukas to Chief, Common
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 1(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 served as a vehicle for examining
NITCO’s involvement in Rhys Mussman’s cable television opera-
tions and as a means of ensuring compliance with the Act and
our policies under Part 63 of the Rules. See note 39, infra.
88 Section 214(a) provides, in pertinent part, that:
[n]o carrier shall undertake the construction of a new line
or of an extension of any line ... unless and until there shall
ee a ee
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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. ...
389 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.
40 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.
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APPENDIX C
UNITED STATES COURT OF APPEALS
DISTRICT OF COLUMBIA CIRCUIT
No. 85-1542
NORTHWESTERN INDIANA TELEPHONE
COMPANY, INC., et al.,
Appellants,
V.
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.
ia.
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 telephon: 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 hoiding 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 lease of tele-
phone pole space to Northwest, violations of the Com-
mission’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 further 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).
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. Alterna-
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;:
PACER ERSTE aT On >
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 telephone/cable
cross-ownership rules. See Comark Cable Fund III, 100
F.C.C.2d 1244 (1985). These rules prohibit a 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 l(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... 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
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.
eee
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 1(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).
87a
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 NITCO’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
’ 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).
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 cther 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, 13 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 Califorwia, 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 163 (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 Sez 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. § 63.57 (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
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 the
cost of construction (over a period of four years), as-
sume some of the risks and benefits of ownership, and
use the transmission system for substantially all of its
useful life. The Commission approved the transaction,
explaining that “[dJespite 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
1003, 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
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.8. 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 (1943). 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
to 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).
7It 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.
§ 533(b) (Supp. III 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.
SOR Re str
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).
NT ee
45a
ings, all in accordance with the Opinion for the Court
filed herein this date. —
Per Curiam
FOR THE COURT:
/s/ George A. Fisher
GFORGE A. FISHER
Clerk
Date: July 31, 1987
Opinion for the Court filed by Circuit J udge 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 *, Circuit. 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).
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 CATV, 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.
i. Before the Commission for consideration is a “Pe-
tition for Stay Pendente Lite” (“Petition”) filed on
September 16, 1985 jointly by Northwestern Indiana
es
Ch a a EI SA he i needle ok
49a
Telephone Company, Inc. (“NITCO”) and Northwest
Indiana CATV, Inc. (“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 CableVision. The gravamen of
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
tne 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 be bound 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 anticompetitive!ly 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,
Ps
~ e228
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.
—_—--~S
een ee ee lt A I NO a ly — ll et ie
‘
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.
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
® 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 p ties 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.
Oe earn NR i ee ra ee ame hegN
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 alia, 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.
nha ROOTES ny le Vite Ney
:
'
:
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;
(ec) 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 Cabie’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.
ls cel ae ll
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 (7.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 CATY, 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.7 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
of 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 Picultural 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,
381 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.
Re or OW ee Selene | een
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. /TT 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. Cit’ 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.
62a
contrary, in opposing CCl’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.2* 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.
Pe ee
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 teleeommunica-
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.”* Neve:
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 compaliy engaged in interstate communication
solely through physical connection with the facilities of another
carrier not directly or indirectly controlling or controlled by, or
under direct or indirect common control 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 153(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 "CC 2d 354 and 356 at n. 3
(1984); cf. General Telephone Company of California, 13 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.
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 ne 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’ réliance 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 Fagle II at para. 9.
28 Jd.
29 Td.
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 Eagle IJ, 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 a
quest, Defendants also have not shown that, without the
requested stay, they will be injured irreparably with re-
spect to the forfeiture. It is well established that “mere
economic loss”, e.g., monetary forfeitures, however, sub-
stantial, are not enough to establish a showing of ir-
reparable injury where refunds can be made, if appro-
priate.*! Defendants have not shown and cannot show
that payment of the $20,000 forfeiture penalty, which
can be promptly redressed should our orders be reversed
by the court, constitutes irreparable injury.
Harm to interested parties
21. Defendants further have failed to show that grant
of a stay would not substantially harm other parties in-
terested in this proceeding. Continued operation of North-
west Cable’s system in Hebron without having obtained,
or even applied for, the requisite authorization—not only
violates our cross-ownership rules and the pro-competitive
policies underlying those rules and Section 6i3(b) of the
Act—but such operations constitute unfair competition
to the detriment of competitors and potential competi-
tors of Northwest Cable and NITCO, particularly First
PIC Acquisition Corporation, the successor-in-interest to
CCI in Hebron and DeMotte, Indiana. In this respect,
this case is distinguishable from the Eagle Telecommuni-
cations case where, in light of the Cable Act and revised
Section 63.58 of our Rules, we authorized the telephone
company to engage in cable television operations within
a “rural” portion of its telephone service area.
Public Interest
22. The cross-ownership rules with which we are here
concerned were adopted to preclude anticompetitive prac-
tices by telephone companies possessing monopoly power
31 Virginia Petroleum Jobbers Ass’n v. F.P.C., supra, 259 F.2d
at 925; Wisconsin Gas Co. v. F.E.R.C., 758 2d (1985); WIYN
Radio, Inc., 59 FCC 2d 424 (1976).
68a
over telephone pole facilities essential to cable television
system entrepreneurs. Continuing violations of these
rules in flagrant disregard of outstanding Commission
decisions and orders, as in this especially egregious case,
should not and will not be condoned. Defendants have
not shown how the public interest would be harmed by
the action taken herein. Indeed, implementation of the
trust order will permit the multiple benefits specified in
para. 19, supra. An alternative cable television system
is operational and available to the public in Hebron; De-
fendants’ DeMotte system has not commenced service to
the public; and no reason appears why the public’s in-
terest in continuing service from the Hebron and the
Lakes of the Four Seasons cable systems cannot be ade-
quately protected through a trust. With respect to the
$20,000 forfeiture we have ordered, NITCO has not
shown in any way how prompt payment would adversely
affect the public interest.
23. In view of the foregoing discussion, we disagree
with Defendants’ contention that Eagle II is controlling
in this case. All of the facts, circumstances, public in-
terest considerations, and equities involved in the Eagle
Telecommunications case and in this proceeding are not
similar. Unlike ETI, NITCO never has obtained nor
even sought the Section 214 authorization required under
our cross-ownership rules. ETI ultimately was assessed
and timely paid a $20,000 forfeiture for its previous vio-
lations of our cross-ownership rules and Section 214 of
the Act. On the other hand, Defendants seek to indefi-
nitely stay payment of a similar forfeiture penalty. Fur-
thermore, unlike the de minimus injury to the independ-
32 Because of intervening action of Congress in the Cable Act
with respect to the “rural” exception to our cross-ownership rules,
we ultimately granted ETI’s Section 214 application in Eagle III.
The rural exemption we there considered is inapplicable in the
instant proceeding since it was not requested and no evidence was
placed in the record to justify it.
ee ets
aman ier pe
UII ar ae io
69a
ent cable operator considered in Eagle II, (1.e., free serv-
ice to 8 homes), substantial damages were here sought
by CCI because of, inter alia, Northwest Cable’s unlaw-
full commercial service to almost 1300 cable television
subscribers.
24. Our review of the four criteria for granting a
stay, as enumerated in paragraph 9, supra, leads us to
believe that the most equitable resolution of the instant
matters, pending the result of the appeal before the U.S.
Court of Appeals, is to require payment of the $20,000
forfeiture while placing operation of the cable company
into an interim trust. In this manner, the public inter-
est will be preserved, and anti-competitive behavior will
be constrained, while Defendants retain the right to have
all assets and profits earned in the event they are suc-
cessful. While there are some costs associated with op-
eration of the trust itself, they may properly be regarded
as normal costs of litigation. The public interest and pro-
competitive benefits of such a trust arrangement out-
weigh such costs in our estimation.** No such counter-
vailing factors appear with respect to payment of the
$20,000 forfeiture and we therefore order its payment
immediately, but subject to the terms of the letter from
the Chief, Common Carrier Bureau, to Russell D. Lukas
and David L. Nace dated September 24, 1985, permit-
ting the Court of Appeais to rule on Defendants’ Emer-
gency Motion for stay.
25. Within seven days of the release of this order,
Defendants shall submit a list of at least three potential
trustees, in order of preference. The trustee should ex-
33 CCI sought in excess of three quarters of a million dollars in
consequential damages. See NITCO’s motion for extension of time,
filed May 8, 1985, at n. 4.
34 The staff is instructed to work with the trustee and Defendants
to assure that all expenses associated with administering the trust
are kept to a minimum.
70a
hibit integrity, legal ability, knowledge of communica-
tions, character, reputation and proximity to the location
of Northwest Cable. Further, the potential trustee shall
have had no business or personal dealings in the past
with Northwest Cable, NITCO, or the Mussman family.
As noted elsewhere in this order, Defendants and Bu-
reau staff had met on several occasions in an attempt to
work out a mutually acceptable trust agreement (See
paras. 5 & 6, supra.) During the course of those discus-
sions, Defendants were asked more than once to provide
the names of possible independent trustees. Thus De-
fendants should, without much further effort, be able to
quickly provide the Bureau with trustee nominees.
Ordering Clauses
26. Accordingly, pursuant to Sections 2, 4(i) and
(j), 208, 214(a), 314,-411(a) and 613(b) of the Com-
munications Act of 1934, as amended, 47 U.S.C. §§ 152,
154(i) and (j), 208, 214(a), 314, 411(a) and 613(b),
and Sections 63.01, et seg. of the Commission’s Rules,
47 C.F.R. §§ 63.01, et seg., IT IS ORDERED, That the
“Petition for Stay Pendente Lite” filed jointly by North-
western Indiana Telephone Company, Inc. and Northwest
Indiana CATV, Inc. on September 16, 1985 IS GRANTED
to the extent indicated herein and OTHERWISE IS
DENIED.
27. IT IS FURTHER ORDERED, That the “Petition
for Leave to File Opposition’, filed by Comark Cable
Fund III d/b/a CCI Cablevision on September 26, 1985,
IS DISMISSED as moot;
28. IT IS FURTHER ORDERED, That the “Motion
for Leave to File Responsive Pleading’’, filed by Defend-
ants on November 8, 1985, IS GRANTED;
29. IT IS FURTHER ORDERED, that NITCO shall
pay the forfeiture ordered in this matter within seven
(7) days of the release of this order;
EEE
Tla
30. IT IS FURTHER ORDERED, That stay of our
divestiture orders IS CONDITIONED upon establishment
of the Interim Trust specified in the Appendix;
31. IT IS FURTHER ORDERED, That the Chief,
Common Carrier Bureau, IS DELEGATED AUTHORITY
to approve amendments to the trust conditions in the
Appendix should any be found necessary or appropriate
to the implementation of our orders in this proceeding;
32. IT IS FURTHER ORDERED, That, within seven
(7) days of the release of this Order, Defendants shail
file nominations for a trustee of Northwest Cable’s assets
in accordance with para. 25, supra;
33. IT IS FURTHER ORDERED, That the Bureau
SHALL cause a copy of this Order to be forwarded by
certified mail, return receipt requested, to counsel for
NITCO and Northwest Cable;
34. IT IS FURTHER ORDERED, That the effective
date of this Order SHALL BE STAYED UNTIL seven
(7) days after judicial determination of the request for
stay pending before the United States Court of Appeals
for the District of Columbia Circuit.
FEDERAL COMMUNICATIONS COMMISSION
WILLIAM J. TRICARICO, Secretary
72a
APPENDIX
INTERIM TRUST
(1) All assets of whatever kind and stock of North-
west Indiana CATV, Inc. (Northwest Cable or North-
west) shall be placed in a trusteeship. Rhys G. Mussman
will retain equitable interest in the assets and stock
placed in trust;
(2) A trustee shall be appointed by the Chief, Common
Carrier Bureau, to uphold the terms of the trust as pro-
vided herein and be compensated therefor in accordance
with terms approved by the Common Carrier Bureau.
He shall have a fiduciary responsibility to maintain all
assets of the company, and to retain all books and records
of Northwest. During his term, no compensation, divi-
dends, interest or payments of any kind whatsoever may
be paid to Northwestern Indiana Telephone Company,
Inc. (NITCO), its employees, its consultants or any mem-
ber of the Mussman family except as provided herein;
Rhys G. Mussman shall have the right to inspect the
company’s books during normal business hours upon prior
reasonable notice.
(3) The Trustee shall maintain the status quo with
respect to operation of the company. In particular, no
construction whatsoever of cable television distribution
facilities, including the addition of subscribers, shall take
place. Also, NITCO shall not construct within its tele-
phone service area facilities intended for or the primary
use of which would inure to the benefit of present or
future cable television systems without prior Commission
authorization;
(4) Without the prior express written approval of the
Common Carrier Bureau’s Enforcement Division (also
referred to hereafter as “the Enforcement Division’),
neither NITCO nor any of its employees, consultants,
subsidiaries or affiliates will participate directly or in-
73a
drectly in the operation, maintenance or management of
Northwest Cable or any other cable television company
operating in NITCO’s telephone service area during the
term of the trust;
(5) The Trustee shall have the right to borrow sums,
compromise and pursue claims, run operations and take
any actions deemed appropriate to the conduct of business
of Northwest during the term of the trust, including pay-
ment of duly tariffed charges properly billed for telephone
service rendered by NITCO and other common carriers.
He or she shall acquire appropriate indemnification in-
surance; ;
(6) All assets and securities of Northwest shall be
transferred to the Trustee within seven (7) days of his
or her appointment;
(7) In the event that the Commission’s orders are re-
versed on the issue of divestiture by the United States
Court of Appeals and, if filed, a petition for a writ of
certiorari is not granted, the trust provided for herein
shall be terminated within five (5) days of such denial
of writ and all assets shall be returned to predecessors-
in-interest. If such a writ is granted and if the Supreme
Court reverses the Commission’s decision on the issue of
divestiture, the trust will terminate within five (5)
days and all assets shall be returned. If the Court of
Appeals or Supreme Court orders a remand of this pro-
ceeding without resolving the issue of divestiture, the
trust provided for herein shall remain in effect through
such further proceedings unless otherwise determined by
those forums.
(8) In the event that Commission’s orders are upheld
by the United States Court of Appeals and, if requested,
a petition for writ of certiorari is not granted, the Trustee
shall be empowered to sell all assets at market value and
shall notify the Commission monthly as to the status of
such efforts. If the Trustee has not entered into an agree-
74a
ment for sale within six (6) months of assuming such
authority, or if closing does not take place within nine
(9) months of such time, the Common Carrier Bureau
shall have the right to appoint a succesor trustee at any
time for the purpose of facilitating sale of the assets;
(9) The Trustee shall, within the first sixty (60) days
after taking office, receive appraisals of the going concern
value of Northwest. Such valuations shall include all
property, including securities, cash balances and other
assets and liabilities included in the corpus of the trust.
The appraiser selected by the Trustee shall be approved
by the Enforcement Division prior to commencing its
activities. This appraisal shall constitute the base value
of the company for the purposes of this trust. In the
event the Orders of the Commission are affirmed in the
Federal Courts and disposition of the assets of the trust
occurs, in accordance with the terms set forth in para-
graph eight (8) above, the Trustee shall order a final
accounting to determine the difference between the base
value appraisal and the net value of the corpus at the
date of termination of the trust. If the difference in
valuation is positive, such difference shall be paid to a
charitable institution or institutions after consultation
with the Enforcement Division. Ali remaining assets less
expenses required to terminate the trust shall be dis-
tributed to Rhys Mussman, currently sole equitable share-
holder of Northwest, or to his heirs and assigns. In the
event there is no difference or the difference is negative,
the entire amount, less expenses required to terminate the
trust, will be distributed to Rhys Mussman, his heirs and
assigns. The trust will be terminated at the completion of
the final accounting and distribution as described in
paragraph twleve (12), below;
(10) The Trustee shall cause to be prepared opening-
day and year-end financial statements consisting of a
balance sheet, income statement and sources and applica-
tions of funds statement. Such statements will be pre-
75a
pared by a CPA and will be in accordance with generally
accepted accounting principles. In addition, quarterly un-
audited statements shall be prepared. All such state-
ments shall be maintained in the offices of the Trustee
and shall be made available for inspection by the Com-
mission staff on twenty-four (24) hours’ notice. All such
information shall be held in confidence by the Commis-
sion staff and shall not be disclosed to any member of
the public, subject to orders of a court of competent
jurisdiction or the Commission ;
(11) Rhys Mussman shall retain the right to direct the
Trustee to sell any or all of the assets of the trust to
anyone not part of the Mussman family, employed by
NITCO, or otherwise affiliated with NITCO within the
meaning of 47 C.F.R. § 63.54 at any time before the
United States Court of Appeals or Supreme Court renders
a decision. In such an event, the Trustee shall hold all
sums received for such assets in escrow pending a final
accounting and distribution regarding such assets accord-
ing to the provisions set forth in paragraph nine (9),
above;
(12) All final payouts contemplated under the trust
shall be made within sixty (60) days after closing the
sale of all assets. Final accounting shall be made, and
upon its issuance, the trusteeship will terminate;
(18) The Trustee shall report to the Commission any
violation of the above provisions and/or of the Commis-
sion’s Rules within seven (7) days of discovering such
violation(s), and shall serve copies of such reports on
counsel for NITCO; -
(14) The Common Carrier Bureau is authorized to
carry out the responsibilities of the Commission con-
templated by this Interim Trust, including amendments
thereof, for just cause.
76a
DISSENTING STATEMENT OF
COMMISSIONER DENNIS R. PATRICK
In re: Comark Cable Fund III
The Commission found on the record before it that
defendants NITCO and Northwest Cable have violated
its cable-telco cross ownership rules and, on reconsidera-
tion, affirmed that finding. Comark Cable Fund III, FCC
85-116, (“March Order”) released March 18, 1985, recon.,
FCC 85-475, released August 23, 1985. The Commis-
sion gave defendant NITCO six months from the release
of the March Order to bring itself into compliance with
these rules by divesting itself of its cable interests. In re-
sponse to defendants’ motion for stay of the divestiture
order, however, my colleagues now propose imposition of
a trust arrangement pending the outcome of defendants’
appeal of that order.
As a general principle, I do not believe that the Com-
mission should inject itself into the day-to-day operations
of a business. There are exceptions to this rule, of course,
when resort tc a Commission-imposed trustee arrange-
ment are essential to facilitate marketplace transactions.
See, e.g., Evening News Association, 58 RR 2d 1527
(1985). Multimedia, 58 RR 2d 924 (1985). This, how-
ever, is not such a case. For this reason, I must dissent
to the majority’s decisions to impose such an intrusive
trustee structure. It is unreasonably burdensome, and, in
my view, will not realize our objectives as quickly as
possible.
I agree with my colleagues that defendants have also
failed to meet three of the four criteria to which the
Commission looks in weighing whether to grant a peti-
tion for stay of a Commission order. Defendants have
shown neither that they are substantially likely to prevail
on the merits of their appeal nor that the continued
operation of their cable system will not irreparably harm
their competitors. See Memorandum Opinion and Order
at para. 6. The majority also concluded correctly that
& | eeeeiper
77a
granting defendants’ request would not further the public
interest. See id. In ordering divestiture, the Commission
gave petitioners six months to bring themselves into com-
pliance with its rules. That deferral reflected a reason-
able balancing of the public interests promoted by the
cross-ownership rules with the public interest in preserv-
ing the access of petitioners’ current customers to cable
services. The public interest will not be served by further
delay in enforcement of our original order.
In my opinion, defendants have also failed to show
that, without the relief they request, they will be ir-
reparably harmed. The Commission has given defendant
NITCO ample time to divest itself of its cable interest.
In such a situation defendant cannot claim that divesti-
ture will cause irreparable harm. The Commission has
not erdered a fire sale. Defendants do not claim that
sale of the system would fail to compensate them fully,
not only for their financial investment in the cable sys-
tems, but also for the present value of future profits
from that business. Nor do they claim that, despite due
diligence, they have been unable in the alloted time to
find a willing buyer. Finally this is not a case in which
the rural exception to the cross-ownership rules has been
raised. Compare Eagle Telecommunications Inc., FCC
84-191, released May 8, 1984.
Accordingly, I would deny defendants’ request that the
divestiture order be stayed. For this reason, I must
dissent to the Memorandum Opinion and Order to the
extent that it does not require defendants to come into
compliance with our rules forthwith.
78a
APPENDIX E
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
Vv.
NORTHWESTERN INDIANA TELEPHONE COMPANY, INC.
and
NORTHWEST INDIANA CATY, INC. d/b/a
NORTHWESTERN INDIANA CABLEVISION,
successor to
RHYsS MUSSMAN d/b/a
NORTHWESTERN INDIANA CABLEVISION,
Defendants
MEMORANDUM OPINION AND ORDER
Adopted August 13, 1985; Released August 23, 1985
BY THE COMMISSION:
1. Before us for consideration is a petition filed on
April 17, 1985, by Northwestern Indiana Telephone Com-
pany, Inc. (NITCO). NITCO seeks reconsideration of
our Memorandum Opinion and Order and Notice of Ap-
parent Liability for Forfeiture, FCC 85-116, released
March 18, 1985 (Order) in the above-captioned proceed-
79a
ing. We there found that NITCO had constructed cable
television distribution facilities in Hebron, DeMotte, and
Lakes of the Four Seasons, Indiana, within its telephone
service area for Northwest Indiana CATV, Inc. (North-
west Cable) without prior Commission approval in viola-
tion of section 214(a) of the Communications Act (Act),
47 U.S.C. § 214(a), and Section 63.54 of our telephone/
cable television cross-ownership rules, 47 C.F.R. § 63.54.?
Among other things, NITCO was ordered to terminate all
affiliations with Northwest Cable and divest all facilities
prohibited by section 63.54 no later than six months from
release of our Order, 1.e., by September 18, 1985. NITCO
also was notified of its apparent liability for forfeiture
in the amount of $20,000 for its willful and repeated vio-
lations of the Act and the Commission’s Rules. For rea-
sons discussed below, we are denying NITCO’s petition
for reconsideration.
ee
1 Also before us are: an April 29, 1985 letter from NITCO’s
attorney; an opposition to NITCO’s petition for reconsideration
filed by the complainant on May 1, 1985; a reply by NITCO filed
May 17, 1985; a supplement and errata to the reply and a motion
for leave to file such supplement filed by NITCO on June 4, 1985;
complainant’s motion to strike such reply filed May 23, 1985;
NITCO’s opposition to the motion to strike filed June 5, 1985; and
complainant’s reply thereto filed June 17, 1985. See also n. 15,
infra.
2 Section 214(a) provides, in pertinent part, that no carrier shall
construct any interstate line without prior Commission authoriza-
tion. Section 63.54 of the Rules proscribes, inter alia, the provision
of video programming to the viewing public by any telephone com-
pany within its telephone service area, either directly, or indirectly
through an affiliated company. A telephone company also may not
furnish pole space or other rental arrangements to an affiliated
company where such arrangements would be used to provide video
programming to the viewing public within the telephone company’s
telephone service area. Affiliation in this connection is broadly
defined to include “any financial or business relationship whatso-
ever by contract or otherwise, directly or indirectly, between the
carrier and the customer, except only the carrier-user relationship.”
Note 1 (a).
80a
Background
2. The facts and circumstances leading to issuance of
our Order are recited therein and in previous orders in
this proceeding and need not be reiterated at length.
The proceeding was initiated by a complaint filed October
12, 1988, by Comark Cable Fund III, d/b/a CCI Cable-
vision (CCI) against NITCO and Northwest Cable (De-
fendants) raising serious issues of anticompetitive con-
duct and continuing Act and Rule violations which De-
fendants recognized “. . . could lead to the imposition of
substantial penalties.” * As early as April 1984, Defend-
ants were cautioned by our Common Carrier Bureau
(Bureau) that any further construction and operation of
the subject cable television systems without Commission
authorization might be found to violate our cross-
ownership rules, would be at NITCO’s peril, and would be
subject to appropriate sanctions, including divestiture.
Defendants nevertheless continued to engage in such con-
duct and sought neither Section 214 authorizations nor
waivers of our cross-ownership rules. In ordering NITCO
to terminate, by September 18, 1985, all affiliations with
Northwest Cable prohibited by our Rules, we also re
quired Defendants to report, no later than April 29, 1985,
their proposals to comply with our Order in this regard.
Defendants also were directed to report the results of
their efforts to settle CCI’s damage claims.
3. In our order we 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 relationships included,
inter alia:
(a) guarantees of substantial bank loans to North-
west Cable by Robert Mussman, NITCO’s chair-
man, president and controlling stockholder;
3 Consolidated Reply to Consolidated Opposition to Motions for
Extensions of Time, filed November 16, 1983, at para. 3.
(d)
(g)
8la
Robert Mussman’s guarantee of an indemnity
agreement by his son, Rhys Mussman, for North-
west Cable concerning litigation Rhys Muss-
man instituted against the Town of Hebron with
respect to cable television in that community;
NITCO’s retention of Rhys Mussman on its pay-
roll, including employee benefits, after his resig-
nation 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;
Robert Mussman’s lease of office space to North-
west Cable;
Robert Mussman’ acceptance or acquiescence in
NITCO’s subleasing of his property to North-
west Cable for the site of the headend of its
Hebron cable television system ;
agreements by which NITCO construed and
agreed to maintain cable television facilities for
Northwest Cable in Hebron, DeMotte, and Lakes
of the Four Seasons, Indiana; and
lease agreements by which NITCO furnished
space on its poles for Northwest Cable’s cable
television systems in those communities.
While Defendants acknowledged these relationships, thev
have not sought waiver of Section 63.54 with respect to
any of them.
Discussion
4. We turn initially to certain procedural issues which
have arisen in this stage of the proceeding. CCI has re-
quested that the reply to its opposition to NITCO’s pe-
tition for consideration be dismissed or stricken as con-
trary to section 1.106(h) of our Rules, 47 C.F.R. § 1.106
82a
(h).* In addition to limiting the evidence which may be
taken on any reconsideration, Section 405 of the Act
provides that reconsiderations “shall be governed by such
general rules as the Commission may establish”.* NITCO’s
reply fails to be limited to matters raised in the opposi-
tion and raises new arguments and defenses in contra-
vention of section 1.106(h) of our Rules. Such argu-
ments were readily available to it earlier in this proceed-
4Section 1.106(h) of our rules governing petitions for recon-
sideration provides that:
[p]etitioner may reply to oppositions within seven days after
the last day for filing oppositions . .. . Replies shall not exceed
10 double spaced typewritten pages, and shall be limited to
matters raised in the opposition.
In granting an unopposed motion by NITCO for a 4-day extension
of time to reply to CCI’s opposition to the subject petition for
reconsideration, the Bureau also granted an incorporated request
for permission to file a pleading not to exceed 20 pages in length,
in lieu of the 10-page limitation specified in Section, 1.106(h).
Even though the number of pages ordinarily permitted in this
connection was thus doubled, NITCO failed to limit its reply to
20 pages. The only justification offered in this regard was that
“Tulnder the press of its pleading deadline, NITCO has inadver-
tently exceeded its twenty-page limitation ....” Reply at n.19.
NITCO asks that we waive the page limitation requirement or
consider the facts asserted in its reply even if the pleading itself
is excluded. On the other hand, CCI requests that the reply be
stricken because only certain paragraphs therein “can be considered
even remotely responsive to CCI’s Opposition.” Motion to Strike at
3. While NITCO stated that it would not oppose a supplemental
response by CCI to the extent the reply addresses matters beyond
those raised in CCI’s Opposition, including new arguments NITCO
apparently wishes to raise in any appeal of our final decision in
this matter, CCI declined such invitation. CCI indicated that it
would request an opportunity to respond to the new matters raised
in NITCO’s reply should its motion be denied. CCI maintains that
our Rules do not permit further pleading cycles and that further
delay of this already lengthy proceeding would benefit NITCO
whose unlawful operations are continuing to the public and CCI’s
detriment.
547 U.S.C. § 405.
83a
ing and could have been included in its petition for re-
consideration. We agree with CCI that, as our review
Board stated in Industrial Business Corporation, 40 FCC
2d 69, (1973):
[o]rderliness, expedition and fairness in the adju-
dicatory process require that reasonable procedural
limits be established and maintained... .
40 FCC 2d at 70. Nevertheless, in light of the action
we have taken herein, we do not believe that CCI will
be unduly prejudiced by our considering the merits of
arguments NITCO may not have raised as timely as it
should have done. Accordingly, while we have not granted
CCI’s motion to strike NITCO’s reply pleading, NITCO
is admonished that we expect compliance with our pro-
cedural requirements and will not tolerate any effort to
unduly delay this adjudicatory proceeding.
5. In asking reconsideration of our order, NITCO
takes exception to our finding that it has violated the
Act and cur Rules. It claims that we made incorrect
findings of fact and also seeks additional factual find-
ings, some of which would be based upon new evidence
NITCO seeks to introduce into the record.
6. NITCO initially challenges our finding that CCI
“held non-exclusive franchises for cable television sys-
tems in the Towns of Hebron and DeMotte, Indiana”’
(Order, at para. 5), alleging that CCI never held a cable
franchise in either town. However, as noted by CCI, the
minutes of the Hebron Town Board meeting of October
23, 1984 indicate that the Town Board approved transfer
of CCI’s franchise to its successor-in-interest in Hebron,
First PIC Cable Television of Indiana, Inc.* Further, as
also noted by CCI, its predecessor-in-interest in DeMotte,
Telecom Services, Inc., was granted a franchise for De-
Motte on the same day Northwest Cable received a simi-
6 See Petition for Reconsideration, Exh. E, at page 1.
84a
lar oné.? In any case, there is nothing in the record to
indicate that, as successor-in-interest to Telecom Services,
Ine., CCI did not assume all rights and privileges that
company may have had with respect to the construction
of cable television facilities in Hebron and DeMotte. Fur-
thermore, even if we were to assume, argquendo, that
CCI never had any right to engage in cable television
activities in Hebron and DeMotte, that would not re-
lieve NITCO of liability for violating the Act and our
Rules. Any person has the right to file a complaint with
the Commission regarding violations of the Act or our
Rules without regard to whether injury has been suf-
fered by the complainant as a result of the alleged wrong-
doing.*®
7. NITCO also challenges our finding that it had en-
tered into oral contracts to construct cable television sys-
tems in DeMotte and Lakes of the Four Seasons prior
to May 14, 1984, when written contracts were executed
(Order, at para. 11 and 12). NITCO argues that, be-
cause construction of the systems did not begin until af-
ter that date, there were no oral contracts. Such con-
clusion is contradicted by the record. The written con-
tracts expressly recite that “THIS AGREEMENT is
made . . . to memorialize the terms of a previous oral
7 See Northwest Cable’s Amended Answer, Exh. 11.
8 Section 208 of the Act, 47 U.S.C. § 208, provides, in pertinent
part, as follows:
Any person .. . complaining of anything done or omitted to be
done by any common carrier subject to this Act, in contraven-
tion of the provisions thereof, may apply to said Commission by
petition . .. whereupon a statement of the complaint thus made
shall be forwarded by the Commission to such common carrier,
who shall be called upon to satisfy the complaint or to answer
the same in writing within a reasonable time to be specified by
the Commission .. . . No complaint shall at any time be dis-
missed because of the absence of direct damage to the com-
plainant. (emphasis added)
85a
agreement between the parties....”° In any event, De-
fendants readily concede the existence of contractual re-
lationships between their companies, at least as of May
14, 1984, pursuant to which cable television facilities
were constructed within NITCO’s telephone service area.
It is not material to our conclusions that construction
was undertaken pursuant to oral or written agreements.
Such construction without prior Commission authoriza-
tion was unlawful.
8. Without explaining why it could not have done so
before release of ovr Order,’ NITCO alleges for the
first time that Northwest Cable had requested cancella-
tion of its contract with NITCO for construction in Lakes
of the Four Seasons and that almost all construction was
performed by Illiana Underground, a construction con-
tractor with offices in Portage, Indiana. Further, NITCO
alleges that half of the Lakes of the Four Seasons com-
munity is in Lake County, Indiana outside NITCO’s
service area.’ NITCO, however, failed to furnish a copy
® Exhibits 1 and 2 of NITCO’s Amended Answer.
10 Section 405 of the Act, 47 U.S.C. § 405, provides, in pertinent
part, as follows:
Reconsiderations shall be governed by such general rules as the
Commission may establish, except that no evidence other than
newly discovered evidence, evidence which has become available
only since the original taking of evidence, or evidence which the
Commission . . . believes should have been taken in the original
proceeding shall be taken on any reconsideration. .. .
Section 1.106(c) (1) of our Rules, 47 C.F.R. § 1.106(c) (1), provides,
in part, that a petition for reconsideration which relies on facts not
previously presented to the Commission may be granted only if the
petition relies on facts which relate to events which have occurred
to circumstances which have changed since the last opportunity to
present such matters; or the petition relies on facts unknown to
petitioner until after his last opportunity to present such matters
which could not, through the exercise of ordinary diligence, have
been learned prior to such opportunity.
11 NITCO argues that no Section 214 authorization would have
been required if it had performed the construction in Lake County
86a
of any written contract or to disclose the terms for such
construction by Illiana Underground. More significantly,
Defendants do not deny that NITCO constructed at least
part of that portion of the Lakes of the Four Seasons
cable television facilities which lies within its telephone
service area in Porter County, Indiana without having
requested authority to do so pursuant to Section 214 of
the Act.
9. Also for the first time, NITCO submitted evidence
in its petition for reconsideration, following release of
our Order, that Robert Mussman’s personal guarantee to
the Town of Hebron with respect to litigation involving
his son’s cable television operations had been withdrawn
on October 23, 1984. Again NITCO offers no explanation
why, in direct contravention with its representation of
November 28, 1983 that “NITCO will report the result
of this effort [to reexecute the indemnity agreement or
otherwise assure the town without Robert Mussman’s
personal guarantee] to the Commission promptly upon
further action being taken”,’® it did not furnish such
information in a timely fashion. We expect more of
parties in proceedings before us, and we will not rou-
tinely waive our Rules on request. In any event, even
if NITCO had timely furnished such evidence before
we issued our Order, our final decision would not have
been different. Robert Mussman’s guarantee was merely
one of the multitude of relevant factors. Other relation-
ships prohibited under Section 63.54 of our Rules in-
cluded, inter alia, permitting the sublease of his property
where it does not provide telephone exchange service. While we
have granted blanket Section 214 authorization to telephone com-
mon carriers to construct cable television facilities outside of their
telephone service areas so that a specific request in that regard is
no longer necessary, we have never held that Section 214 was inap-
plicable or that a specific or blanket authorization was not essential
under the Act of our Rules. See n.31, infra.
12 NITCO Answer, at para. 15.
87a ~
by NITCO for use as the headend site of his son’s Hebron
cable television system,’ his guarantee of several bank
loans to Northwest Cable, his lease of office space to
Northwest Cable, and allowing NITCO to pay substan-
tial consulting fees to Rhys Mussman as his primary
means of support.
10. NITCO objects to our having given weight to Rhys
Mussman’s representations to public officials by which he
linked his cable television activities with his father,
Robert Mussman (Order, at para. 22). NITCO main-
tains that “despite [such] represen
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