Petition for Writ of Certiorari — Top Vision Cable Co. v. City of Owensboro

Supreme Court brief1973

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Statement of Questions Presented for Review....... 2

Constitutional and Statutory Provisions... ........ 2-3

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I. The Relea’ Communications Commission, by

the Enactment of Regulations Dealing With Lo-

cal Franchise Requirements for a Cable Televi-

sion Franchise, Has Preempted This Area of the

Law so That the Severability of a Franchise Fee

Provision From the Remainder of a Franchise

Agreement Must be Determined as a Matter of

Federal Law and Policy Rather Than Sate Law. 7-11

If. The Judgment of the Kentucky Court of Appeals

Results in a Deprivation of Petitioner’s Prop-

erty Without Due Process of Law, in Violation

of the Fourteenth Amendment to the Constitu-

tion of the United States..................... 11-13

i cc ou ve anecbusaweedts 14

es cain d aki eaaeeaiawdapaneens 15-50

Judgment of Daviess Circuit Court, Filed April 7,

EERE RP a 2a oe A oe Pe 15-16

Opinion and Judgment of Court of Appeals of Ken-

tucky, rendered September 22, 1972........... 17-27

Franchise Agreement Between City of Owensboro

and Top Vision Cable Oo. of Ky. ............ 28-35

Federal Communications Commission Letter Ruling

“Franchise Provisions at Variance With FCC

Cable Television Rules”, Dated August 22, 1972.36-40

Petition for Rehearing to Kentucky Court of Ap-

Dias isicvetbaditvessnstsetevtakebedcans 41-50

—— sr S—‘“CS

TABLE OF AUTHORITIES

Cases: saan

Conway v. Taylor, 66 U. S. 603, (1862)............ 12

CRN A wanes ch onic utube eas da eke 12

Crittenden County v. McConnell, 237 Ky. 806, 36

ic Ore I ER ce a

O’Brien v. Western Union Telegraph Co., 113 F. 2d

ee ee a ee 10

Tennessee Electric Power Co. v. Tennessee Valley

Authority, 306 U. S. 118, 142 (1938)........... 11-12

Textile Workers Union v. Lincoln Mills, 353 U. S.

Gi Se nS aventesnliacbbecsesbn kbs. 10

United States v. Southwestern Cable Co., 392 U. S.

BOE ate inna 2s dwn cbds banks eek ets. 7- 9

Western Union Telegraph Co. v. Speight, 254 U. S.

SED Hie Kobe 5 bc aKbs Rec dcekeechbauadss. 10

Wonderland Ventures, Inc. v. City of Sandusky,

Inc., Wonderland Ventures, Inc. v. City of Fre-

mont, 423 F. 2d 548 (6th Cir., 1970).......... 4,5, 11

Constitutional Provisions:

Fourteenth Amendment to the Constitution of the

ee ae re hae Unrate amt ee 2-3

Statutes:

I - 2

Oe ne a a en ee

Regulatory Provisions, Rulings & Orders:

P & F Radio Reg. 185.31 (March 31, 1972)........ 6

Cable Television Report and Order, 24 RR 2d 1506

I i eT a 8, 9

CATV Rules 24 RR 1501 (1972).................. 9

Proposals for Regulation of Cable Television Sub-

mitted to Congress by The Federal Communica-

tions Commission (August 5, 1971)............ 11

Federal Communications Letter Ruling “Franchise

Provisions at Variance With FCC Cable Televi-

sion Rules” (August 22, 1972)................ 11

a 6

SUPREME COURT OF THE UNITED STATES

Top Vision CaBLE Co. or Ky. - ~- Petitioner

Crry or OWENSBORO, KENTUCKY, a Municipal

Corporation of the Second Class, and

Irvin TERRILL, Mayor, Wairman C. Tayor,

Commissioner, JOHN D. MILLER, Commis-

sioner, JOHN C. FisHer, Commissioner,

ALTon Puckett, Commissioner - Respondents

PETITION FOR CERTIORARI TO THE

KENTUCKY COURT OF APPEALS

The Petitioner, Top Vision Cable Co. of Ky., re-

spectfully prays that a writ of certiorari issue to re-

view the judgment and opinion of the Kentucky Court

of Appeals entered-in this proceeding on September

22, 1972.

OPINION BELOW

The opinion of the Kentucky Court of Appeals is

reported at 487 Southwestern Second 283.

JURISDICTION

The date of the entry of the judgment sought to be

reviewed is September 22, 1972. A timely petition for

rehearing was denied on December 15, 1972, and this

Petition for Certiorari was filed within ninety (90)

days of that date. This Court’s jurisdiction is invoked

under 28 U.S.C. §1257(3).

II.

QUESTIONS PRESENTED

Whether the Federal Communications Com-

mission, by the enactment of regulations deal-

ing with local franchise requirements for a

Cable Television Franchise, has preempted this

area of the law so that the severability of a

franchise fee provision from the remainder of

a franchise agreement must be determined as a

matter of federal law and policy rather than

state law?

Whether the Judgment of the Kentucky Court

of Appeals results in a deprivation of Petition-

er’s property without due process of law, in

violation of the Fourteenth Amendment to the

Constitution of the United States?

CONSTITUTIONAL AND STATUTORY

PROVISIONS

The Constitutional provision here involved is Sec-

tion 1 of the Fourteenth Amendment to the Constitu-

tion of the United States, which is set out verbatim as

follows:

All persons born or naturalized in the United

States, and subject to the jurisdiction thereof, are

citizens of the United States and of the State

wherein they reside. No State shall make or en-

force any law which shall abridge the privileges or

immunities of citizens of the United States; nor

shall any State deprive any person of life, liberty,

or property, without due process of law; nor deny

to any person within its jurisdiction the equal pro-

tection of the laws.

The statutory provision here involved in 47 U.S.C.

§151, which is set out verbatim as follows:

For the purpose of regulating interstate and

foreign commerce in communication by wire and

radio so as to make available, so far as possible, to

all the people of the United States a rapid, efficient,

Nation-wide, and world-wide wire and radio com-

munication service with adequate facilities at rea-

sonable charges, for the purpose of the national

defense, for the purpose of promoting safety of

life and property through the use of wire and

radio communication, and for the purpose of secur-

ing a more effective execution of this policy by

centralizing authority heretofore granted by law

to several agencies and by granting additional

authority with respect to interstate and foreign

commerce in wire and radio communication, there

is created a commission to be known as the ‘‘Fed-

eral Communications Commission’’, which shall be

constituted as hereinafter provided, and which

shall execute and enforce the provisions of this

chapter.

STATEMENT OF THE CASE

The Petitioner is a corporation organized and ex-

isting under the laws of the Commonwealth of Ken-

tucky. Since December, 1965, Petitioner has owned a

franchise issued by the City of Owensboro, Kentucky,

(hereinafter sometimes referred to as the ‘“‘City’’),

which franchise entitled it to operate a cable television

system within the city limits of Owensboro. Prior to

the time this lawsuit was commenced, Petitioner had

spent in excess of $430,000.00 in construction of such a

system. Under the terms of the franchise, Petitioner

was obligated to pay the City a franchise fee equal to

26% of the gross income received by Petitioner from

its operation of the cable system.

On March 26, 1972, in the consolidated cases of

Wonderland Ventures, Inc. v. City of Sandusky, Won-

derland Ventures, Inc. v. City of Fremont, 423 F. 2d

548 (6th Cir., 1970), the Court of Appeals for the

Sixth Circuit held that municipal ordinances which im-

pose a gross receipts tax on cable television systems are

unconstitutional because such a tax constitutes a bur-

den upon proceeds from interstate commerce in viola-

tion of the Commerce Clause of the Constitution of the

United States.

After the decision in Wonderland Ventures, Inc. v.

City of Sandusky, supra, Petitioner instituted a declar-

atory judgment action in the United States District

Court for the Western District of Kentucky, asking

for a declaration that the gross receipts fee provision

relative to its franchise be adjudged unconstitutional

pursuant to the rule announced by the federal circuit

court in Wonderland, supra. Shortly thereafter, the

Defendants, the Respondents herein, moved to dismiss

that action due to the Court’s lack of jurisdiction, bas-

ing their motion on a resolution passed after institu-

tion of the suit at a Board of Commissioner’s meeting

for the City of Owensboro. That resolution officially

conceded the constitutional invalidity of the 26% gross

receipts provision. The district court then dismissed

the case for lack of jurisdiction since the sole federal

issue involved there was the constitutionality of the

gross receipts fee provision.

After the City’s concession of the invalidity of the

26% gross receipts fee provision, the Petitioner at-

tempted to renegotiate a franchise fee to be paid to the

City for the rights granted by the franchise, but the City

refused all attempts to enter into such negotiations. The

City took the position that, nothwithstanding a clear-cut

severability clause in the franchise agreement, the in-

validity of the fee provision invalidated the entire Fran-

chise Agreement (Appendix, pp. 27-34), and therefore

the Petitioner no longer had a franchise to exercise.

The present action was originally filed in the Daviess

Circuit Court by the Petitioner on December 19, 1970,

with the Petitioner asking that the court rule, in part,

that the invalidity of the franchise fee provision did

not invalidate the entire Franchise Agreement, and

thereby deprive it of its franchise. In addition, the

Petitioner asked the Court to direct the City to renego-

tiate the franchise fee provision so that Petitioner

could move forward and exercise its franchise.

On April 6, 1971, the trial court, relying in part

upon the clear-cut severability clause in the Franchise

Agreement, ruled that the Franchise Agreement re-

mained valid and enforceable despite the unconstitu-

tional fee provision, and ordered the City to renegoti-

ate that fee provision based upon the burdens imposed

or likely to be imposed by the CATV system upon the

public ways of the City (Appendix, p. 15). The

Respondent appealed from the decision of the Daviess

Circuit Court, and the Kentucky Court of Appeals, in

a ruling issued on September 22, 1972, in which the

severability clause is ignored, held that the entire Fran-

chise Agreement was void due to the invalidity of the

gross receipts fee provision (Appendix, pp. 16-26).

Prior to the date of the decision by the Kentucky

Court of Appeals, but subsequent to the time the case

had been submitted on briefs to that Court, the Federal

Communications Commission issued detailed regula-

tions pertaining to franchise fees paid by franchisees

to a municipality for a cable television franchise. As

of March 31, 1972, the FCC rule provided that

The franchise fee must be reasonable (e.g., in the

range of 3-5% of the franchisee’s gross sub-

seriber revenues per year from cable television

operations in the community (including all forms

of consideration, such as initial lump sum pay-

ments)). P & F Radio Reg. 185.31 (March 31,

1972).

In its Petition for Rehearing, filed with the Ken-

tucky Court of Appeals on October 20, 1972, (Appen-

dix, pp. 41-50) the Petitioner argued that by these rules

eee

the Federal Communications Commission had pre-

empted the area relating to franchise fees and CATV

franchises, and that as a result the question of the va-

lidity or invalidity of the Franchise Agreement must

be decided by looking to the federal law, federal regu-

lations, and federal policy rather than state common

law. In addition, Petitioner noted the Kentucky

court’s failure to face the issue of the severability

clause and requested that the Kentucky court squarely

pass on this issue.

On December 15, 1972, the Court of Appeals, with-

out issuing an opinion, overruled the Petitioner’s Peti-

tion for Rehearing.

ARGUMENT

I. The Federal Communications Commission, by the Enact-

ment of Regulations Dealing With Local Franchise

Requirements for a Cable Television Franchise, Has

Preempted This Area of the Law so That the Severabil-

ity of a Franchise Fee Provision From the Remainder of

a Franchise Agreement Must Be Determined as a Mat-

ter of Federal Law and Policy Rather Than State Law.

It is accepted that the Federal Communications

Commission (hereinafter referred to as “‘Commis-

sion’’) has the authority pursuant to the Communica-

tions Act of 1934, 47 U.S.C. §151, to fully and com-

pletely regulate cable television, United States v. South-

western Cable Co., 392 U. S. 157 (1968), and that such

regulation is necessary and desirable considering the

impact that cable television has had and will continue

to have on the national communications network.

CAT'V systems, formerly no more than local auxil-

iaries to broadcasting, promised for the future to

provide a national communications system, in

which signals from selected broadcasting centers

would be transmitted to metropolitan areas through

the country. United States v. Southwestern Cable

Co., supra. at 164.

Since 1960, the Commission has responded to the

increasing national importance of cable television by

gradually asserting its jurisdiction over the operation

of such systems. Jd. at 165. In February, 1972, the

Commission further extended its jurisdiction in this

area by adopting extensive rules regarding the issu-

ance of cable television franchises and the operation of

these cable systems. See CABLE TELEVISION RE-

PORT AND ORDER, 24 RR 2d 1506 (February 2,

1972). The rules became effective as of March 31,

1972.

In its REPORT, the Commission voiced increased

concern over the large local franchise fees being paid

by certain cable systems, and the burden such fees place

upon the ability of a cable television system to provide

efficient and inexpensive service to its customers, to the

ultimate detriment of the national communications

policy.

The ultimate effect of any revenue raising fee is

to levy an indirect and regressive tax on cable sub-

seribers. Second, and of great importance to the

Commission, high local franchise fees may burden

cable television to the extent that it will be unable

to carry out its part in our national communica-

tions policy. CABLE TELEVISION REPORT

AND ORDER, supra, at 1578.

As the result of these concerns, the Commission ruled

that the ‘‘maximum franchise fees should be between

3 and 5% of gross subscriber revenues.”” CATV Rules,

24 RR 1501, 1506 (1972).

In addition to enacting the rule regarding max-

imum franchise fees, the Commission also adopted other

rules relating to the type and nature of a franchise to

be granted a cable television system. For example, the

Commission established time tables for the construc-

tion and operation of cable systems, CATV Rules, 24

RR at 1505, and ruled that reasonable limits must be

placed on the duration of franchises, which in most

cases are not to exceed fifteen years. Id. The Com-

mission also established rules regarding the minimum

channel capacity, Id., access to channels, Id., and many

other matters related to requirements under local fran-

chise agreements. It is interesting to note that the

Commission expressly provided that there were certain

issues related to cable television which were to remain

within the jurisdiction of the state. Thus, the Com-

mission ruled that ‘‘(d)elineation of franchise areas is

a matter for local authorities to be exercised on a non-

discriminatory basis.’’ Jd. In the same manner,

the Commission gave to local authorities the power to

regulate subscriber rates. Id. In essence, it seems

clear that by the adoption of this comprehensive scheme

for the regulation of cable television the Commission

has totally preempted the state of any authority to

dictate franchise provisions or standards, with the

exception of those areas expressly left to the state or

local body.

With the federal government, through the Commis-

sion, having occupied this area, questions relating to

the continuing validity of a franchise and the sever-

ability of a franchise fee provision from the remainder

of the Franchise Agreement in particular, must be

governed by uniform federal rules rather than state

common law or state statutes. See, Western Union

Telegraph Co. v. Speight, 254 U. S. 17 (1920) ; O’Brien

v. Western Union Telegraph Co., 113 F. 2d 539, 541

(Ast Cir., 1940) ; ef. Textile Workers Union v. Lincoln

Mills, 353 U. S. 448 (1957).

The Commission has attempted to provide for a

uniform system of regulation and control of cable

television for the benefit of the public. If the decision

of the Kentucky Court of Appeals in the instant case

is allowed to stand, it will mean that Kentucky courts

have the authority to disregard federal policy and fed-

eral efforts to provide uniform standards for cable

television and federal efforts to establish a national

communications system. The Kentucky Court of Ap-

peals did not consider the Commission’s CATV Rules,

effective prior to the date of its decision in the instant

ease, nor did it make any attempt to consider federal

policy in its decision. That Court’s judgment amounts

to a decision that the attempt by the FCC to regulate

cable television will result in the invalidation of every

franchise agreement in Kentucky where the franchise

provisions are not in conformity with the Commission’s

rules.

The FCO’s purpose to be served by the enactment

of these rules and regulations was to ‘“‘open up Cable’s

potential to serve the public,” Proposals for Regula-

tion of Cable Television Submitted to Congress by

the Federal Communications Commission (August 5,

1971), not to invalidate all franchises which do not

conform to the rules. The FCC reemphasized this pur-

pose in a Letter Ruling, dated August 22, 1972, entitled

‘Franchise Provisions at Variance with FCC Cable

Television Rules’? (Appendix, pp. 35-39) in which it

stated

that franchises (should) be drawn to include sever-

ability clauses that will enable the Commission to

authorize system operations without the delay that

might be created by the necessity for franchise

amendment.

The Franchise Agreement in question here has such a

severability clause, yet the Kentucky Court of Appeal’s

decision disregarded not only the clause, but the fed-

eral purpose to be served by such a clause.

In sum, what we have here is a train of events

which, if undisturbed by this Court, could pose the in-

validity of franchise agreements throughout the coun-

try. As set forth above, the national policy concern-

ing franchise fees resulting from the adoption by the

Commission of CATV Rules is that all franchise fees

established by local grantors of CATV franchises

should not exceed the range of 3% to 5% of gross re-

ceipts. The law as enunicated by the Court of Appeals

for the Sixth Circuit in Wonderland Ventures, Inc.,

supra, is that a franchise fee provision based upon

some substantial percentage of gross receipts is uncon-

stitutional as an improper burden upon interstate com-

merce. Clearly, neither the Court of Appeals for the

Sixth Circuit nor the FCC intended that the invalidity

of certain franchise fee provisions should result in the

wholesale invalidation of cable television franchises.

However, unless this Court sets aside the action of the

Kentucky Court of Appeals here in affirming the ac-

tion of the City of Owensboro, it will be open to every

municipality and regulatory agency in the states and

cities of the country to invalidate CATV franchises

and to frustrate the national policy established by

the FOC.

II. The Judgment of the Kentucky Court of Appeals Re-

sults in a Deprivation of Petitioner’s Property Without

Due Process of Law, in Violation of the Fourteenth

Amendment to the Constitution of the United States.

A franchise issued for any purpose by the state or

any subdivision within the state, has long been recog-

nized as property which the franchisee cannot be de-

prived of except by due process of law. See, ¢.9., Ten-

nessee Electric Power Co. v. Tennessee Valley Author-

ity, 306 U. S. 118, 142 (1938) ; Conway v. Taylor, 66

U. 8. 608, Crittenden County v. McConnell, 237 Ky.

806, 36 S. W. 2d 627 (1931). Any state action which

results in the loss to the Petitioner of its franchise

rights without a full consideration by a judicial body

of each and every relevant fact must be considered

state action which violates Petitioner’s right to due

process under the Fourteenth Amendment. The judg-

ment of the Kentucky Court of Appeals, declaring the

Petitioner’s franchise to be void, was made without

any consideration of the intent of the parties, as ex-

pressed in the Agreement, or the stated national policy

favoring the constant availability of cable television

service to the public. As a result, the Court’s action

was arbitrary and capricious, resulting in a depriva-

tion of Petitioner’s property without due process of

law in violation of the Fourteenth Amendment to the

Constitution of the United States.

The Kentucky Court of Appeals absolutely refused

to consider the fact that the Franchise Agreement con-

tained a severability clause which expressly provided

that should any provision of the Franchise Agreement

be held invalid, ‘‘such invalidity shall not affect the

validity of this grant as a whole, or any part thereof,

other than the part declared invalid’? (Appendix, p.

33). While the Court of Appeals recognized the ex-

istence of that provision, that Court completely failed

to grant any weight to the expressed intention of the

parties, as stated in the severability clause.

Furthermore, severability was not only the ex-

pressed intention of the parties, but it is also an essen-

tial part of the national policy concerning cable tele-

vision franchises, as enunciated by the Commission.

In a Letter Ruling, dated August 22, 1972, and en-

titled ‘‘Franchise Provisions At Variance with FCC

Cable Television Rules’ (see Appendix, p. 39), the

Commission stated

that franchises (should) be drawn to include sever-

ability clauses that will enable the Commission to

authorize system operations without the delay that

might be created by the necessity for franchise

- amendment.

This statement of policy by the Commission, brought

to the Court of Appeals’ attention in Petitioner’s Peti-

tion for Rehearing, was intended to facilitate the con-

tinuation of cable television service in situations such

as the one presented here. Yet that national policy, as

well as the expenditure by Petitioner of an amount in

excess of $430,000.00 to provide the residents of Owens-

boro with cable television service was totally ignored

by the Kentucky Court of Appeals.

The Court of Appeals’ refusal to consider the stated

national policy concerning cable television franchise

agreements and the expressed intention of the parties

regarding the severability of provisions within the

Franchise Agreement, was arbitrary and capricious,

and its judgment amounts to a deprivation of Peti-

tioner’s property without due process of law, in viola-

tion of the Fourteenth Amendment to the Constitution

of the United States.

CONCLUSION

For the reasons stated above, a writ of certiorari

should issue to review the judgment and opinion of the

Kentucky Court of Appeals.

Respectfully submitted,

Epaar A. ZINGMAN,

Jon L. FLEISCHAKER,

Wryatt, GraFrton & S.oss,

300 Marion E. Taylor Building

Louisville, Kentucky 40202

Counsel for Petitioner

DAVIESS CIRCUIT COURT

DIVISION IL

Civil Action No. 13298

Tor Viston CABLE aah OF an a Beton

Corporation - - - Plaintiff

Crry or OwenszBoro, Kentucky, a Municipal

Corporation of the Second Class, and

Irvin Terriwi, Mayor,

Warrman C. Taytor, Commissioner,

Joun D. Muziek, Commissioner,

Joun C. Fisner, Commissioner and

Auton Puckett, Commissioner - - - Defendants

JUDGMENT

This cause having come on for hearing this 6th day of

April, 1971, upon the motion of the defendants to dismiss

and the motion of the plaintiff for Summary Judgment;

the Court having considered the pleadings, exhibits, memo-

randa and argument of counsel, and the Court being ad-

vised, it is hereby

OrperED: (1) The defendants’ motion to dismiss be, and

hereby is, OVERRULED.

(2) That the plaintiff's motion for Summary Judgment

be, and hereby is, Sustarnep as follows:

1. That Paragraph 2 of the agreement of December 17,

1965, by and between the City of Owensboro, Kentucky,

and Top Vision Cable Co., Inc. of Ky. be, and hereby is,

found severable from the remainder of the agreement and

the remainder of the agreement be and hereby is declared

valid.

2. That the plaintiff and the defendants be, and hereby

are, directed to renegotiate the payment provisions of Para-

graph 2 of the aforesaid agreement of December 17, 1965,

to arrive at a reasonable and fair sum based upon the privi-

leges granted and the burdens imposed or likely to be im-

posed under the aforesaid agreement upon the public ways

of the City of Owensboro, Kentucky.

3. That the defendants grant unto the plaintiff a rea-

sonable period of time within which to complete construc-

tion of the CATV system provided for under the aforesaid

agreement of December 17, 1965.

4. That the defendants be and hereby are permanently

enjoined and prohibited from soliciting or considering bids

or granting a franchise for a CATV operation within the

City of Owensboro to any party within the period of such

reasonable time for completion of construction of the CATV

system as shall be agreed to pursuant to 3 above.

5. The plaintiff shall be, and hereby is, denied the right

to recover fees heretofore paid to the City of Owensboro

pursuant to the agreement of December 17, 1965.

THE COMMONWEALTH OF KENTUCKY

The Court of Appeals

Fall Term—September 22, 1972

Top Vision Cable Co. of Ky.,

A Ky. Corp.

Appeal from a judgment

of the Daviess Circuit

Court

Vv.

(ity of Owensboro, Ky., Etce.,

Et Al.

MANDATE—Issued December 15, 1972

The Court being sufficiently advised, it seems the judg-

ment herein is erroneous.

It is therefore considered that said judgment be re-

versed for proceedings consistent with the opinion herein;

which is ordered to be certified to said court.

It is further considered that the cross-appellant recover

of the cross-appellee its cost herein expended.

(s) Frances Jones Mills

COURT OF APPEALS OF KENTUCKY

BENDERED: SEPTEMBER 22, 1972

Crry or OwEnssono, Kentucky, a Munici-

pal Corporation of the Second Class,

mAh = «5 = « «© * Semiiate

Top Vision Caste Company or Kentucky,

a Kentucky Corporation - - - - Appellee

AND

Top Vision Caste Company or Kentucky,

a Kentucky Corporation -— - Cross-Appellant

Crry or Owznssono, Kentucky, a Munici-

pal Corporation of the Second Class,

ree ae Cross-Appellees

Consolidated Appeals from Daviess Circuit Court

Division IT

Honorable Dan M. Griffith, Judge

OPINION OF THE COURT BY COMMISSIONER

GARDNER—REVERSING

The City of Owensboro advertised for bids for a fran-

chise to provide the citizens with community antenna tele-

vision service (CATV). Top Vision Cable Company of

Kentucky was granted the franchise. Pertinent provisions

of the franchise agreement were as follows:

The effective date was December 17, 1965, with the

grantees’ having the privilege of continuing for 15 years.

Top Vision was granted the right to use the public ways

of the city necessary for proper installation and mainte-

nance of the system and also the city granted Top Vision

the right, insofar as it could, to use poles and equipment of

other utility companies within the city.

Construction was to be completed within two years.

If not completed within two years the franchise was to

become null and void. The city, in its discretion, could

“extend said two (2) year deadline from time to time upon

written application for same by the second party. * * *”

Top Vision was to provide coverage of all telecasts

originating within a 40-air-mile radius of Owensboro.

Top Vision was to pay the city a sum equal to 26 percent

of the gross income from the business within the City of

Owensboro.

If any provision of the franchise agreement was de-

clared invalid, such declaration would not affect the re-

mainder of the franchise.

Soon after the franchise was granted the Federal Com-

munications Commission promulgated a rule prohibiting the

importation of distant television signals into the top 100

television markets. Owensboro is located in one of the 100

largest markets, to wit, the Evansville, Indiana, market.

Enforcement of the rule would prevent Top Vision from

picking up television signals from Louisville, Nashville,

Bowling Green and Paducah. While the franchise agree-

ment required that Top Vision supply coverage of telecasts

originating from transmitters located only within a 40-mile

radius of Owensboro, it was alleged by Top Vision and

seems to have been acknowledged by the city, as shown

by subsequent events, that it was anticipated by both

parties that a wider coverage would be supplied. Top

Vision alleged that the FCC rule was such a disappoint-

ment to prospective customers that many refused to accept

Top Vision’s service. This in turn, Top Vision claimed,

made it more difficult to obtain capital to complete the

work.

Before the initial two-year period expired Top Vision

requested and was granted a 12-month extension of time

(to December 20, 1968) in which to provide the service.

The resolution authorizing the extension contained the pro-

vision, “* * * Whereas, the Board of Commissioners is

aware of the matters now pending between the Top Vision

Cable Company and the Federal Communications Commis-

sion and deem said request for an extension of time to be

reasonable; * * *.” Near the end of the extended period

Top Vision requested and was granted another extension

to December 20, 1970. The resolution recited, “Whereas,

the Board of Commissioners deem the unforeseen stringent

regulation of the Federal Communications Commission now

in force and the proposed proceedings challenging them,

sufficient cause for granting the written application of Top

Vision Cable Company, Inc. for an extension of time within

which to complete its system with the City, * * *.”

Top Vision states that the city actively participated in

trying to obtain a waiver of the FCC rule; that city officials

wrote letters in behalf of Top Vision to the FCC and one

of the city commissioners made a personal appearance be-

fore the FCC on May 21, 1969, in an effort to get a waiver

of the ruling.

On March 26, 1970, in the consolidated cases of Wonder-

land Ventures, Inc. v. City of Sandusky, etc., 423 F. 2d 548

(6th Cir.) (1970), cert. denied, 400 U. S. 824, the Court of

Appeals for the Sixth Circuit held that the ordinance there

in issue (similar to that contained in the present franchise)

imposed a gross-receipts tax on CATV systems and was

unconstitutional as a burden on interstate commerce in vio-

lation of the commerce clause of the United States Con-

stitution. In the wake of that decision, Top Vision re-

quested that it and the city “renegotiate” the amount to be

‘20

paid for the use of the public ways of the city. The city

refused. Thereupon Top Vision instituted action in the fed-

eral court to have declared invalid the provision whereby

it was to pay 26 percent of the gross receipts to the city.

The city filed a pleading acknowledging the invalidity of

the 26-percent provision and the suit was dismissed because

no actual controversy existed. The order of dismissal was

entered November 23, 1970.

On November 4, 1970, Top Vision made a written re-

quest to the city for the third extension. The request was

denied by resolution dated November 6, 1970. The present

action was instituted by Top Vision on December 19, 1970.

In its complaint Top Vision asked that it be declared

that the city had no authority to require that local CATV

operations be franchised by the city, and that it be de-

clared that the city could not deny Top Vision the privilege

of using the public right of ways upon payment of a reason-

able fee. In the alternative Top Vision asked that it be

declared that the 26-percent clause was severable and that

the remainder of the franchise agreement be held valid

with further declarations that Top Vision be required to

pay only a reasonable sum for the use of the public ways,

that Top Vision be given a reasonable time within which

to complete the project, that the city refund the amounts

paid under the 26-percent clause, and that the city be pro-

hibited from advertising for the granting of another fran-

chise during the pendency of the action.

The city’s motion to dismiss the complaint was over-

ruled. On the same day Top Vision moved for a summary

judgment and on the same day the motion for summary

judgment was sustained and judgment entered. The judg-

ment made no mention of Top Vision’s demand that it be

declared that the city had no legislative authority to re-

quire CATV operations to be franchised. The judgment

provided (1) that the 26-percent clause was severable and

the remainder of the agreement was valid, (2) that the city

and Top Vision renegotiate and arrive at a reasonable

amount to be paid for the use of the public ways, (3) that

the city grant Top Vision a reasonable time in which to com-

plete the project, (4) that the city be enjoined from solicit-

ing or considering bids or granting an exclusive franchise

for a CATV operation within the city, and (5) that Top

Vision not recover the fees paid under the invalid 26-per-

cent clause. ,

In the city’s motion to vacate the judgment one of

the grounds was that the judgment was entered without

the city’s having filed an answer. It is noted that the city

waived notice of motion for summary judgment. The judg-

ment recites that the cause was submitted upon motion of

the city to dismiss the complaint and upon motion of Top

Vision for summary judgment. The judgment also recites

that the court “considered the pleadings, exhibits, memo-

randa and argument of counsel.” CR 12.02 provides that

when upon motion to dismiss because the pleading fails to

state a claim matters outside the pleading are presented,

the motion shall be treated as one for summary judgment.

It is obvious that the court and the parties treated the

kindred motions together and that the efforts of the pro-

spective parties relative to the motion to dismiss were also

relied on in the motion for a summary judgment. It was

not until after the summary judgment had been entered

that the city raised the point that it had not filed its

answer.

An anomolous situation is presented where both parties

contend that the franchise agreement is invalid. The city

argues that since the 26-percent clause is an integral and

vital provision of the franchise, and since the federal court,

in effect, held the clause unconstitutional, the franchise

agreement is invalid in its entirety. Top Vision on the

other hand contends that the invalidity arose because the

city had no constitutional or statutory authority in the

first place to require a CATV business to be franchised.

Ordinarily where both parties argue that a contract is in-

valid the court would simply agree and enter an order to

that effect. In the present instance, however, the reason

for the invalidity would have an important effect on fur-

ther proceedings. If the reason is as contended by the city,

the city could readvertise for bids and grant a franchise to

someone other than Top Vision. If Top Vision’s conten-

tion is sound, then the furnishing of cable reception to the

viewers would be on an open-market basis.

First we shall look at Top Vision’s contention that the

judgment was erroneous because it was predicated on the

city’s having authority to require a CATV business to be

franchised. Section 163 of the Kentucky Constitution is

as follows:

“No street railway, gas, water, steam heating, tele-

phone, or electric light company, within a city or town,

shall be permitted or authorized to construct its tracks,

lay its pipes or mains, or erect its poles, posts or other

apparatus along, over, under or across the streets,

alleys or public grounds of a city or town, without the

consent of the proper legislative bodies or boards of

such city or town being first obtained; but when

charters have been heretofore granted conferring such

rights, and work has in good faith been begun there-

under, the provisions of this section shall not apply.”

Section 164 of the Kentucky Constitution is as follows:

“No county, city, town, taxing district or other

municipality shall be authorized or permitted to grant

any franchise or privilege, or make any contract in

reference thereto, for a term exceeding twenty years.

Before granting such franchise or privilege for a term

of years, such municipality shall first, after due adver-

tisement, receive bids therefor publicly, and award the

same to the highest and best bidder; but it shall have

the right to reject any or all bids. This section shall

not apply to a trunk railway.”

KRS 96.050 reads in part as follows:

“SECOND-CLASS CITY MAY REGULATE CON-

STRUCTION AND OPERATION OF UTILITIES—

The legislative body of any city of the second class

may, by ordinance:

(1) Direct and control the laying and construction

of railroad or street railway tracks, bridges, turnouts

and switches, poles, wires, apparatus and appliances

in the streets and alleys of the city, and the location

of depot grounds within the city.”

This court has ruled decisively that services other than

those enumerated in section 163 of the Kentucky Constitu-

tion are subject to franchise. In the case of Ray v. City of

Owensboro, Ky., 415 8S. W. 2d 77 (1967), the right of the

city to require a franchise for the operation of ambulance

service was attacked. We said:

“It will be noted that section 163 deals with certain

specific subjects, to-wit, street railway, gas, water,

steam heating, telephone or electric light companies

within a city or town. We do not believe the right

granted cities by this section is today limited to these

specific utilities. The purpose of the section was to

give the city control of the streets, alleys and public

grounds and to make it possible for the city to provide

the services of these utilities to its inhabitants. There-

fore, the right granted is not and properly should not

be restricted to those utilities enumerated, but applies

to all utilities and services which might today be

proper subjects for control, when the original intent

and purpose of the act is considered.”

We have held the following projects to be subjects for

franchise: Garbage collection, City of Bowling Green v.

Davis, 313 Ky. 203, 230 S. W. 2d 909 (1950); automobile-

bus line operating over streets, People’s Transit Co. v.

Louisville Railway, 220 Ky. 728, 295 S. W. 1055 (1927);

right to use a part of a river bed for the extraction of sand

and gravel, Willis v. Boyd, 224 Ky. 732, 7 S. W. 2d 216

(1928).

it cannot be denied that television is an integral part

of American life. It possesses many of the attributes of a

public utility. It is of a public nature. It is said in 36 Am.

Jur. 2d, Franchises, section 3, page 825:

“Generally speaking, the right to carry on any

business of a public nature, such as the establishment,

construction, and operation of a public utility and the

collection of tools or charges for its use or service, or

the use of highways for such purpose, is a franchise.”

Of rather recent vintage is the cable system. It is rap-

idly gaining in popularity. It enables the viewer to see a

clearer picture. Especially is it desirable where the orig-

inating signal is far away. Stringent regulations of CATV

by the FCC have been upheld by the Supreme Court of the

United States. See United States v. Mid-West Video Corp.,

___ U. §. —_, 92 S. Ct. 1880 (decided June 7, 1972).

We cannot accept Top Vision’s argument that the city is

not involved because the cables and wires will be placed

on poles and strung over public ways where existing utility

companies have the right to operate by other franchises.

It is not shown, in the first place, that all cables and wires

will be constructed and used coincidentally with existing

equipment of other utilities, and, in the second place, under

its general obligation to provide its citizens with safe, clean

and unobstructed public ways, the presence of television

cables, even in connection with existing utilities, would be

an added burden on the city. We are of the opinion that

the right to operate a community antenna television service

in a city is a subject for franchise. We are also of the

opinion that a franchise is an agreement between the grant-

ing authority and the holder and partakes of the usual in-

cidents of a contract. See City of Louisville v. Louisville

Home Telephone Co., 149 Ky. 234, 148 S. W. 13 (1912);

Prestonsburg Water Co. v. Dingus, 271 Ky. 240, 111 S. W.

2d 661 (1937); City of Bowling Green v. Davis, 313 Ky.

203, 230 S. W. 2d 909 (1950); and 36 Am. Jur. 2d, Fran-

chises, section 6, page 728.

The city further contends that the 26-percent clause

cannot be severed from the remainder of the agreement

without doing violence to one of the underlying purposes of

the franchise, to-wit, to provide revenue to the city, and

the elimination of the clause vitiated the contract. This

contention, we believe, is sound. It is true that the pri-

mary purpose of a public utility, including cable television,

is to make available adequate service to the customers

(Louisville Home Telephone Co. v. City of Louisville, 130

Ky. 611, 113 S. W. 855 (1908)) but also of importance is

the remuneration to be received by the public authority.

Both parties entered into the contract in good faith. On

the strength of the contract Top Vision says it expended

some $430,000. The city expected to receive 26 percent of

the gross receipts. Since Top Vision was unwilling to pay

the amount it agreed to, when it was determined the 26-

percent clause was invalid, then the city was within its

rights in declining to extend the franchise.

We are of the opinion, and the city concedes, that Top

Vision is entitled to recover the equipment and materials

it is using in connection with the project. The circuit

court should determine and grant Top Vision a reasonable

time to remove or sell the property.

Top Vision insists it is entitled to a refund of the amount

paid to the city under the invalid 26-percent clause. The

arguments of the respective sides have been well briefed.

Top Vision argues that the rule in this jurisdiction is that

money paid under a mistake of law may be recovered, citing

Spalding v. City of Lebanon, 156 Ky. 37, 160 S. W. 751

(1913). The city counters by saying that since Top Vision

has utilized the public ways it cannot recover the amounts

paid for that privilege, citing Postal Telegraph Cable Co. v.

City of Newport, 160 Ky. 244, 169 S. W. 700 (1914), and

Bastin Telephone Co. v. Mount, 176 Ky. 26, 195 S. W. 112

(1917). Upon a remand of the case we believe the trial

court should determine the question of remuneration to the

city on the basis of what a reasonable fee would be for

Top Vision’s use of the city’s public ways for the CATV

service. If overpayment has been made then the excess

should be refunded to Top Vision.

Since we have determined that the contract was invalid

by virtue of the 26-percent clause we see no need to discuss

another argument made by the city that Top Vision’s fail-

ure to complete the project within the two years specified

by the contract vitiated the contract nor Top Vision’s

counterargument that the city was estopped from insisting

on the forfeiture.

Judgment is reversed and the case remanded for further

proceedings consisting with this opinion.

Steinfeld, O.J., and Hill, Milliken, Osborne, Palmore,

and Reed, JJ., concur.

Neikirk, J., concurs in result only.

Attorneys for Appellants and Cross-Appellees:

HUGH D. MOORE

GILLIAM anp MOORE

324 St. Ann Street

Owensboro, Kentucky 42301

Attorneys for Appellee and Cross-Appellant:

EDGAR A. ZINGMAN

JON L. FLEISCHAKER

WYATT, GRAFTON & SLOSS

300 Marion E. Taylor Building

Louisville, Kentucky 40202

JOSEPH MoKINLEY,

McKINLEY anp HOWARD

111 Frederica Street

Owensboro, Kentucky 42301

SMITH, PEPPER, SHOCK & L’HEUREUX

1776 K Street N. W.

Washington, D. C. 10008

FRANCHISE AGREEMENT

This Franchise Agreement made and entered into on

this the 17th day of December, 1965, by and between the

City of Owensboro, Kentucky, a municipal corporation of

the second class, Party of the First Part, and Tor Vision

Caste Company, Inc. or Kentucky, Party of the Second

Part.

WirnessetxH : That for and in consideration of the public

service to be rendered by the party of the second part to

the residents of Owensboro, Kentucky, and the further con-

sideration as more fully set out herein, the party of the first

part does hereby grant unto the party of the second part,

its successors and assigns, for a period of fifteen (15) years

from the date hereof, the franchise and privilege of using

the public ways, streets, highways, bridges or public places

of the City of Owensboro, Kentucky, for the supplying of

visual and audio television and radio signals to the public,

subject to the following terms, conditions and covenants,

to-wit:

1. The party of the second part, its successors or as-

signs, shall have the franchise, privilege, right and power

to erect, install, construct, re-construct, replace, remove, re-

pair, maintain and operate in or upon, under, above, across

and from the streets, avenues, highways, sidewalks, bridges

and other public ways, easements, right-of-way and lands,

as now existing and all extensions thereof and additions

thereto, in the City of Owensboro, Kentucky, all equipment,

facilities, appurtenances and apparatus of any nature for

the purpose of receiving, amplifying, transmitting and

distributing therefrom radio, electrical and electronic en-

ergy, pictures, sounds, signals, impulses and communica-

tion, uni-directional and multi-directional of every nature

and description, audio and video, embracing any and all of

the frequencies of the electrical magnetic spectrum and to

otherwise engage in the business, services and activities

generally known as and practiced now and in the future by

community antenna television and audio communication

services in accordance with the laws of the United States

of America, the Commonwealth of Kentucky and the City

of Owensboro, Kentucky, for a period of fifteen (15) years

from and after the date hereof; but subject to the restric-

tions and provisions herein contained.

2. The party of the second part, in consideration of the

terms of this franchise, agrees to pay to the party of the

first part a sum equal to the cost of the advertising and

selling of this franchise, upon proper billing by first party

to second party plus the sum of money equal to 26% of the

gross income received by the party of the second part from

all sources whatsoever derived within the City of Owens-

boro, the payment of which shall be payable one-half (74)

thereof in semi-annual payments. Said semi-annual pay-

ment dates shall be the 30th day of June and the 3lst

day of December of each year and each semi-annual pay-

ment shall be made within 30 days thereafter. The party

of the second part shall keep complete records of accounts

showing dates and payments received and any duly author-

ized agent of the City of Owensboro shall have the right,

power and authority to inspect the gross monthly income

records of the party of the second part.

3. There is hereby granted to the party of the second

part, insofar as the City of Owensboro may legally grant

same, the further right, privilege and authority to lease,

rent or in any other manner obtain the use of towers, poles,

lines, cables and other equipment and facilities from any

city owned utility and any and all holders of public licenses

and franchises within the corporate limits of the City of

Owensboro, subject to all existing and future ordinances,

regulations and laws of the City of Owensboro and the

Commonwealth of Kentucky. It is the stated intention of

the party of the first part that all holders of public licenses

and franchises within the corporate limits of the City of

Owensboro shall cooperate with the party of the second

part to allow party joint usage of their poles and pole-line

facilities whenever possible and whenever such use does

not interfere with the normal operations of such poles and

pole-lines. However, the party of the second part shall

own and have complete responsibility for the maintenance

and operation of the full system and that responsibility

shall not be divided. Prior to the erection or installation

of any such towers, poles, guys and anchors on any munic-

ipal properties, including public ways and easements, the

party of the second part shall secure approval of said loca-

tion by the City Manager of the City of Owensboro or any

other authorized person designated by the City and also

secure approval from any state or county official of any

locations on the properties, including public ways and ease-

ments of the State of Kentucky and County of Daviess.

Such permission shall not be unreasonably withheld on the

part of the City.

4. The party of the second part shall, during the ex-

istence of this franchise, furnish reasonable, adequate and

efficient community antenna reception service to the sub-

scribers connected to its system within the corporate limits

of the City of Owensboro and said party of the second part

agrees to construct and maintain its system in reasonable

repair and working order, said system to be constructed

with top grade American made equipment and second party

These maintenance requirements may be temporarily sus-

pended by disaster or emergency conditions or other cir-

cumstances beyond its reasonable control.

5. The party of the second part shall charge only rea-

sonable rates for the service rendered to its customers, but

shall not as to any rates, charges, service facilities, rules,

regulations or in any other respect make or grant any

shall provide adequate facilities for maintenance of same.

preference or advantage to any person or subject any per-

son to any prejudice or disadvantage, provided, however,

they shall not be deemed to prohibit the establishment of a

graduated scale of charges and classified rate schedules to

which any customer, within such classification shall be

entitled.

6. The party of the second part shall not directly or

indirectly engage in any phase of the business of television

receiving set sale, lease, repair or maintenance within the

City of Owensboro, Daviess County, Kentucky, nor shall

it use its community antenna television, radio and audio

communication services constructed under this franchise

for the purpose of pay television.

7. No privilege or exemption is granted or deferred by

this franchise except these specifically prescribed herein.

Any privilege claimed under this franchise in any street,

public way or easement shall be subordinate to any prior

lawful occupancy of the street and to all laws, ordinances

and regulations of the City of Owensboro, State of Ken-

tucky and the United States of America. No rights, fran-

chise or privileges herein granted are to be exclusive.

8. The party of the second part shall at all times

indemnify, protect and save harmless the City of Owens-

boro, any official, agency, commission or board thereof from

and against any and all liability, losses and physical dam-

age to property and bodily injury or death to persons, in-

cluding payments made under Workmen’s Compensation

laws which may arise out of or be caused by the erection,

construction, replacement, removal, maintenance and op-

erations of the party of the second part’s community an-

tenna television and audio communications service and

resulting from or by any negligent fault or misconduct on

its part or by its agents, officers, servants and employees

and it shall carry a policy or policies of liability insurance

indemnifying all loss, damage or destruction of property

to the extent of $25,000.00 and as to any one person, city,

agency or board in the amount of $100,000.00 and as to any

one accident resulting in liability on account of injury to

or death of one person and in the amount of $300,000.00 as

to any one accident as it may relate to damages to persons

and property.

9. The party of the second part shall, in the case of

any opening or obstruction in the streets or other public

ways of the City of Owensboro made by it in the course of

construction, operation or removal of its installations,

guard such activity by the placement of adequate barriers,

fences or boardings, the bonds of which during the periods

of dusk and darkness shall be clearly designated by warn-

ing lights. In the case of any disturbance or damage to any

streets or public ways occurring in the course of erection,

installation, construction, reconstruction, replacement, re-

moval, repair, maintenance or operation, the party of the

second part shall properly repair and restore same at its

own expense. In the event that at any time the party of the

first part shall lawfully elect to alter any street, alley or

other public way, the party of the second part shall, upon

reasonable notice, remove or relocate its poles, wires, cables,

conduits or other fixtures at its own expense.

10. The party of the second part shall include in its

coverage to its customers any telecast originating from a

transmitter located within a forty (40) air mile radius from

the City of Owensboro, Kentucky, provided that such tele-

casts effect either a Grade A, or Grade B, contour in the

City of Owensboro as indicated in the current edition of

Television Factbook, or any other authoritative publication

carrying such designation. It is further agreed and under-

stood that notwithstanding any of the foregoing, the party

of the second part shall at all times include within its cov-

erage to its customers telecasts from all of the major net-

works.

11. The party of the first part may declare a forfeiture

of the franchise herein granted in the event of substantial

violation of any of the terms hereof upon written notice to

the party of the second part specifying the nature of the

violation unless such violation is corrected or ceases to exist

within sixty (60) days from the date of the written notice

of same to the party of the second part. Such forfeiture

shall be by resolution of the Board of Commissioners of the

City of Owensboro, Kentucky.

12. The party of the second part shall, within sixty

(60) days from the date hereof, make proper application

to the Federal Communications Commission and to any and

all other governmental agencies, both state and federal as

is provided by law, for any permits, licenses or approvals

necessary to construct, maintain and operate the system.

The party of the second part shall commence the construc-

tion of the system herein at a reasonable time from the

securing of such permits, licenses and approvals and shall

prosecute such construction with due diligence; it being

understood, as a condition of this franchise, that the con-

struction of such system shall be completed to the extent

of making available community antenna service to substan-

tially all of the citizens of Owensboro, Kentucky, on or be-

fore two (2) years from the date herof or this franchise

shall be and become null and void without notice or further

act by the party of the first part. For cause, in its sole dis-

cretion, the Board of Commissioners of the City of Owens-

boro, Kentucky, may extend said two (2) year deadline

from time to time upon written application for same by

the second party at least sixty (60) days prior to said

deadline or extension thereof.

13. The franchise, right, privilege and power herein

granted, together with all of the terms and conditions hereof,

shall extend and apply to the successors and assigns of the

party of the second part, however, no assignment of same

may be made, except by operation of law, until said assign-

ment has been approved by a resolution of the Board of

Commissioners of the City of Owensboro, Kentucky, which

approval shall not be unreasonably withheld. In the event

such assignment takes place with such consent, then im-

mediately upon the delivery to the City of Owensboro of

the aforesaid agreement of assignment, duly executed by

the assignee, all of the rights, obligations and privileges

herein granted to the second party shall forthwith devolve

upon the assignee who shall in all respects stand in the

place and stead of the original corporation hereunder. In

the event the party of the second part, or its successors or

assigns shall be adjudged bankrupt or placed in receiver-

ship, the party of the first part may, at its option, declare

the rights herein granted to be forfeited and terminated.

14. As part of the consideration for the rights and

privileges herein granted, the party of the second part

agrees to provide one free drop, with no monthly service

charge to the City Hall building, fire and police stations,

public library and to all public and parochial primary and

secondary schools located within the City of Owensboro,

Kentucky, which are passed by a cable.

15. It is agreed and understood that the party of the

second part shall not erect its receiving tower in an area

of Daviess County, Kentucky, that will interfere in any

manner with aircraft approaches to the Owensboro-Daviess

County Airport and shall secure approval of such location

from the F.A.A. prior to constructing such receiving tower.

16. In the event any section, clause, paragraph or pro-

vision of this grant shall be declared invalid by a court of

competent jurisdiction, such invalidity shall not affect the

validity of this grant as a whole, or any part thereof, other

than the part declared invalid.

In Testimony WHEREoF, witness the signatures of the

parties hereto on this the day and date first hereinabove

written.

Crry or OwEnsBon0, KENTUCKY

By /s/ Ducan Best

Mayor

Tor Viston Caste Company, Inc. or KENTUCKY

By /s/ Harotp R. Sacraves

Vice-President

Attest:

/s/ Aprette SHELTON

City Clerk

(Szat)

State of Kentucky Sot.

City of Owensboro

The undersigned as City Clerk of the City of Owensboro,

Kentucky, hereby certifies that the above is a true copy of

Franchise Agreement as same appears on the records of the

City of Owensboro, of which records the undersigned is

legal custodian.

This July 24, 1970.

/s/ ADELLE SHELTON,

City Clerk

NEWS

Federal Communications Commission

1919 M. Street, N.W.

Washington, D.C. 20554

Public Notice

For information on releases and texts call 632-0002

87959

August 22, 1972—G

FRANCHISE PROVISIONS AT VARIANCE WITH FCC

CABLE TELEVISION RULES

The following letter has been sent to Western Communi-

cations, Inc. by Sol Schildhause, Chief of the Cable Tele-

vision Bureau, in response to an inquiry about the extent

to which Federal-State/local franchising authorities can

establish regulations which are different from those estab-

lished by the FCC for cable television systems:

This is in reply to your letter of August 3, 1972, in which

you question the extent to which franchising authorities

can establish regulations in excess of or different than

the regulations established by the Commission in the

Cable Television Report and Order. I have taken the

liberty of combining some of your questions and re-

phrasing others for purposes of clarity.

1. Q.

2. Q.

May a franchising authority in a major television

market specify a minimum channel capacity in

_ excess of 20 channels?

In footnote 25 of the Memorandum Opinion and

Order on Reconsideration of the Cable Television

Report and Order, the Commission stated that

while it has preempted the area of channel ca-

pacity, it would not foreclose a system from

meeting more stringent local requirements . . .

“upon a demonstration of need for such channel

capacity and the system’s ability to provide it.”

(emphasis supplied) Also see paragraph 132 and

footnote 70 of the Cable Television Report and

Order.

May a franchising authority outside a major

market specify a minimum channel capacity and,

if so, can this minimum channel capacity be in

excess of what this Commission requires for a

major market?

A. Cities outside major markets may specify a mini-

mum channel capacity, but such capacity may not

be in excess of what the Commisssion requires for

systems in major markets. See Sections 76.251-

(b) of the Rules and paragraph 148 of the Cable

Television Report and Order.

3. Q. May a franchising authority located outside a

major television market require a cable system

to maintain a plant having the technical capacity

for nonvoice return communications?

A. Yes—see Section 76.251(b) of the Commission’s

Rules and paragraphs 132 and 148 of the Cable

Television Report and Order.

4. Q. May any franchising authority require a more so-

phisticated form of return communications?

A. In footnote 25 of the Memorandum Opinion and

Order on Reconsideration of the Cable Television

Report and Order the Commission stated, “Where

a franchising authority has a plan for actual use

of a more sophisticated two-way capability and

the cable operator can demonstrate its feasibility

both practically and economically, we will con-

sider, in the certificating process, allowing such

equipment.” (emphasis supplied)

5. Q. Can a franchising authority require all access

services to be made available at no charge?

A. No—The Commission will consider in the certifi-

cating process, however, requirements that addi-

tional public access channels or some educational

channels be offered at no charge or at reduced

cost on an experimental basis. See paragraph 132

of the Cable Television Report and Order. —

6. Q. Cana franchising authority require the franchisee

to make available more access channels than those

specified by the Commission?

9. Q.

10. Q.

No—unless during the certificating process the

Commission is shown that such additional chan-

nels are necessary and capable of being used ac-

cording to an existing, viable plan. See Section

76.251 (a)(11)(iv) of the Rules, and paragraph

132 of the Cable Television Report and Order.

Can a franchising authority require a franchisee

to provide access services outside major markets?

Yes—but to no greater extent than the Commis-

sion requires for systems in major markets. See

Section 76.251(b) and paragraphs 132 and 148 of

the Cable Television Report and Order.

May a franchising authority impose a franchise

fee based upon revenues derived from “auxiliary”

services such as advertising revenues, leased

channel revenues, pay cable revenues, etc.?

No—Subseriber revenues are considered to be

those revenues derived from regular subscriber

services—i.e., the carriage of broadcast signals

and required non-broadcast services.

May a franchising authority insist on a franchise

fee higher than 3% if the excess fee is to be used

for funding public access services?

There is no hard and fast answer to this ques-

tion at present. Clearly, however, the factors that

would bear heavily in the Commission’s consider-

ation of any such scheme would include the

amount of excess fee, the danger that, through

funding, local governments would control public

access programming, and the possibility of other

alternatives.

May a franchising authority require a faster con-

struction schedule than that suggested by the

Commission ?

Yes—See Section 76.31(a)(2) of the Commis-

sion’s Rules.

€

11.Q. May a franchising authority require systems

with fewer than 3500 subscribers to engage in

local origination?

A. The Commission has preempted this field. See

paragraph 48, First Report and Order, 20 FCC

2d 201, at 223. See also “Clarification of CATV

First Report as to Scope of Federal Pre-emp-

tion,” 20 FCC 2d 741. Under these circumstances,

I believe the Commission would reject such a

requirement. Further, the Commission preemp-

tion extends to policy concerning any waiver of

the origination rule.

12.Q. May a franchising authority establish technical

standards in excess of those required by the Com-

mission ?

A. Yes—(See paragraph 91 of the Memorandum

Opinion and Order on Reconsideration of the

Cable Television Report and Order) The Com-

mission will not, however, assume responsibility

for enforcement of more stringent technical stan-

dards. Local authorities should therefore be pre-

pared to assume the burden of such enforce-

ment.

13.Q. May a franchising authority limit a franchisee to

providing services that can be performed only by

the franchisee itself?

A. No—Clearly the concept of access services is to

offer the benefits of a multiplicity of channels

to the public. Thus in Sections 76.251 (a) (11)

(i) and (iii), system operators are specifically

forbidden to exercise control over the program

content of public and leased access channels.

The foregoing responses to your questions should in-

dicate the degrees to which the Commission will sanction

franchise provisions at variance with its cable regulatory

program. Where variances are sought, as for instance

where a franchise calls for extra acgess channels, greater

channel capacity, or a higher franchise fee, detailed show-

ings will be required during the certificating process. If

such a showing is inadequate, the Commission will not issue

a certificate of compliance.

It is recommended, therefore, that franchises be drawn

to include severability clauses that will enable the Com-

mission to authorize system operations without the delay

that might be created by the necessity for franchise amend-

ments, (Emphasis supplied.)

I hope the foregoing is responsive to your inquiry. If

I can be of further assistance to you, do not hesitate to

call on me.

ESO RABI BSH Poke

—_ reammamammamaramacasec ean

COURT OF APPEALS OF KENTUCKY

File No. V-63-71

Crry or Owrnssoro, Kentucky, Er Au. - Appellants

Tor Vision Caste Co. or Ky. - - - - Appellee

APPEAL FROM DAVIESS CIRCUIT COURT

SECOND DIVISION

PETITION OF APPELLEE FOR REHEARING

STATEMENT OF THE CASE

The Appellee, Top Vision Cable Co. of Ky., (hereinafter

referred to as “Top Vision”) is a corporation organized

under the laws of the Commonwealth of Kentucky. The

Appellant, City of Owensboro, Kentucky (hereinafter re-

ferred to as the “City”), is a municipal corporation of the

State of Kentucky, and the Appellants, Irvin Terrill, Wait-

man C. Taylor, John D. Miller, John C. Fisher, and Alton

Puckett, are members of the Board of Commissioners of

Owensboro, the governing body of the City.

On October 22, 1965, the City enacted Ordinance No.

63-65 (R. 17), which authorized the advertising for and the

issuance of a CATV franchise within the City. Top Vision

made a bid on the franchise, and on December 17, 1965, the

City, through its Board of Commissioners, adopted a reso-

lution confirming the issuance of a CATV franchise to Top

Vision and granting the franchise to Top Vision under the

terms of a Franchise Agreement, dated December 17, 1965

(R. 24). Under the terms of paragraph 2 of the Agreement

(R. 24), Top Vision was obligated to pay the City an annual

franchise fee for the privilege of operating the franchise,

the fee being equal to 26% of the gross income received by

Top Vision from its operation of the CATV system.

As the Court noted in its opinion, Top Vision almost im-

mediately encountered unexpected, unforeseen and severe

hardships, wholly beyond its control, in its attempt to com-

plete the construction of the CATV system for the City.

These hardships centered around the promulgation by the

Federal Communications Commissicu (FCC) of a rule pro-

hibiting the importation of distant television signals into

the top one hundred (100) television markets. Owensboro

is located in one of these one hundred ‘argest television

markets, the Evansville market.

The City recognized the severe hardship placed on Top

Vision by the FCC ruling, and recognized that the FCC rule

prohibited the City from achieving its purpose in granting

the franchise, to enable the citizens of Owensboro to receive

distant television signals within the City. Twice the City

granted Top Vision extensions of time in which to complete

the CATV system for the expressed purpose of allowing

Top Vision to go before the FCC “in an effort to relieve the

CATV system in the City of Owensboro from the operation

of certain restrictive regulations of said Commission. . . .”

(Resolution No. 66-68, granting extension of time for con-

struction of CATV system, R. 36), and City officials wrote

letters and made appearances before congressional commit-

tees and federal agencies in their attempts to aid Top Vision

resolve the problem.

On March 26, 1970, the Court of Appeals for the Sixth

Cireuit held that ordinances imposing a gross receipts tax

on CATV systems were unconstitutional as imposing a bur-

den upon the proceeds from interstate commerce in viola-

tion of the Commerce Clause of the Constitution of the

a a a ee asceenenianaaana

United States. Wonderland Ventures, Inc. v. City of San-

dusky, Wonderland Ventures, Inc. v. City of Fremont, 423

F. 2d 548 (6th Cir., 1970). Due to the decision in Wonder-

land, supra, Top Vision attempted to renegotiate the license

fee payment with the City on the basis of the cost to the City

of the operation of the CATV system by Top Vision. The

City unreasonably refused to renegotiate and has continued

in its refusal to negotiate up to this point.

On September 22, 1970, Top Vision filed an action in the

United States District Court for the Western District of

Kentucky for a declaratory judgment against the same par-

ties as are defendants in the instant case, asking that the

26% gross receipts provision of the Franchise Agreement

be adjudged unconstitutional under the Commerce Clause

of the United States Constitution, pursuant to the rule an-

nounced in Wonderland, supra. The defendants moved to

dismiss that complaint, on the ground that they concurred

in Top Vision’s position that the 26% gross receipts license

fee provision was unconstitutional. Shortly thereafter, the

defendants moved to dismiss for lack of jurisdiction, basing

their motion on “Resolution No. 56-70” (R. 28), which reso-

lution officially conceded the constitutional invalidity of the

26% gross receipts provision. The federal court then dis-

missed the case for lack of jurisdiction, since there was no

longer any “federal question” involved.

Despite the City’s concession of the constitutional in-

validity of the 26% gross receipts provision based upon the

decision in Wonderland, it continued to demand payments

under that franchise fee arrangement, now held and con-

ceded to be unconstitutional. Top Vision has stopped mak-

ing such payments pending the outcome of this action, but

from 1965 through August 1970, it paid 26% of its gross

revenue to the City pursuant to the illegal terms of the

Franchise Agreement. Such payments amounted to over

$9,500.00 illegally collected by the City.

8 POEL PCI NAPLES IPE LOTSA GLI OT NE, EE

This action was filed in the Daviess Circuit Court by

Top Vision on December 19, 1970, asking for a declaratory

judgment and injunctive relief against the City. Top Vision

asked for a declaration that: (1) the City had no authority

to require a CATV operation to be franchised; (2) that any

charge for the use of the City’s right-of-ways must be rea-

sonably related to the cost to the City of such use; (3) that

the 26% gross receipts fee provision in the Franchise Agree-

ment, conceded to be unconstitutional, was severable from

the remainder of the Agreement, which remains valid;

(4) that Top Vision should be granted an additional and %

sufficient period of time in which to complete the construc- z

tion of the CATV system. In addition, Top Vision asked f

the court: (1) to determine a reasonable fee for the use of '

the City’s public right-of-ways; (2) to order the City to

refund all monies received by the City pursuant to the un-

lawful and unconstitutional 26% gross receipts fee provi-

sion; and (3) to restrain the City and its officials from treat-

ing the Franchise Agreement as null and void and of no

legal effect.

On April 6, 1971, the Daviess Circuit Court granted, in :

part, Top Vision’s motion for summary judgment on the

basis of the pleadings, the exhibits attached to the plead-

ings and the memoranda and argument of counsel (R. 39).

The court held that paragraph 2 of the Franchise Agree-

ment, the invalid franchise fee provision, was severable

from the remainder of the Agreement, which remained

valid, and directed the City to renegotiate the payment

provisions based upon the burdens imposed or likely to be

imposed by the CATV system upon the public ways of the

City. The court also granted Top Vision a reasonable time

in which to complete construction of the system. In addi-

tion, the court held that a CATV system was a suitable sub-

ject for a franchise granted by a municipality in Kentucky,

and denied Top Vision the right to recover any of the illegal

DOT oy AY SEIS rece giaterec a oT i

fees theretofore paid to the City under the terms of para-

graph 2 of the Franchise Agreement.

The City appealed from the decision of the Daviess Cir-

cuit Court in regard to all its holdings, with the exception

of its decision that the municipality had the authority to

regulate a CATV business operation by franchise, and its

holding that Top Vision was not entitled to a refund of the

money paid to the City under the unlawful and unconstitu-

tional fee provision of the Franchise Agreement. Top

Vision cross-appealed from these latter decisions of the

trial court. The appeal and cross-appeal were consolidated,

and on September 22, 1972, this Court rendered judgment

reversing the Daviess Circuit Court by ruling that: (1) a

CATV business operation was a suitable subject for fran-

chising under the laws of Kentucky ; (2) the illegal franchise

fee provision in the Franchise Agreement could not be

severed from the Agreement, and the invalidity of the fee

provision vitiated the entire contract; and (3) Top Vision

was entitled to recover the fees previously paid to the City

which were illegal and unconstitutional.

ARGUMENT

I. The Court Failed to Give Adequate Consideration to the

Expressed Intention of the Parties Regarding the Sever-

ability of the Gross Receipts Fee Provision From the Re-

mainder of the Franchise Agreement.

In its opinion, this Court recognized that the Franchise

Agreement expressly provided that “[i]f any provision of

the franchise agreement was declared invalid, such declara-

tion would not affect the remainder of the franchise.”

(p. 2) But in its later analysis of the severability of the

fee provision, the Court completely failed to give any con-

sideration whatsoever to the expressed intention of the par-

ties that should any provision of the Agreement be held

— EOE AE LTE DAMIEN LTS OR ITI

ae - ws .

invalid by a court of competent jurisdiction, as was the case

here, “such invalidity shall not affect the validity of this

grant as a whole, or any part thereof, other than the part

declared invalid.” (Paragraph 16 of the Franchise Agree-

ment, R. 21)

Whether a contract clause may be severed from the re-

mainder of the contract without affecting the validity of

that contract as a whole “involves the ascertainment of the

intention of the parties, which must be deduced from the

contract itself.” Koppers Co. v. Asher Coal Min. Co., 226

Ky. 492, 11 S. W. 2d 114, 115 (1928) (Emphasis supplied) ;

see also, J. S. McHargue v. Scott, Ky., 305 S. W. 2d 929

(1957).

The Court totally disregarded the parties’ expressed

statement as to the severability of any clause within the

Franchise Agreement. Instead, the Court accepted the

City’s unsupported contention, based on absolutely no evi-

dence whatsoever in the record, that one of the primary

purposes of the franchise was to provide revenue to the

City, and that the fee provision could not be severed with-

out doing violence to this purpose. By accepting this un-

substantiated statement, the Citur totally disregarded the

expressed intention of the parties, as it appeared on the

face of the Agreement. There was absolutely no evidence

to contradict the clear intention of the parties, as expressed

by the contract itself.

Furthermore, in its opinion the Court cited with ap-

proval the case of Ray v. City of Owensboro, Ky., 415 S. W.

2d 77 (1967). As the Court noted, that case, as well as

several others, stands for the proposition that “the purpose

of the section (Section 163 of the Constitution) was to give

the city control of the streets, alleys and public grounds

and to make it possible for the city to provide the services

of these utilities to its inhabitants.” 415 S. W. 2d at 79.

There is nothing to indicate that the authority to issue

franchises was bestowed on municipalities for any purpose

related to the raising of revenue.

What, therefore, is commonly termed the “granting”

of a franchise by a city for one of these public utilities

is in the nature of a contract by the city with the

grantee for the performance of a public service. . . .

From this view of the subject it will readily be seen

that the primary object a city would have, in contract-

ing for or procuring the services of such utilities, is

not the revenue to be obtained for the city, but the

securing of good and efficient service. . . . Louis-

ville Home Telephone Co. v. City of Louisville, 113

S. W. 855, 861 (1908). (Emphasis supplied)

It is clear that Sections 163 and 164 of the Constitution

were enacted solely for the purpose of allowing the City to

provide certain essential services to its inhabitants, and

not to provide additional sources of revenue for a munici-

pality. The City’s statement to the contrary is not only

totally unsupported by the evidence, but it also has no basis

in law.

II. The Court Failed to Recognize the Preemption by the

Federal Communications Commission of the Question

of Franchise Fees for CATV Systems.

Clearly, the erroneous application of Kentucky law to

the severability issue, by itself, requires revision of the

Court’s September 22, 1972 decision.

Perhaps of more serious consequence, however, is the

chaos posed for CATV throughout Kentucky by this deci-

sion. Chaos, because the decision presumptively invalidates

most existing CATV franchises in Kentucky and flies in the

face of the preemptive regulation of the franchise aspects

of CATV by the United States through the Federal Com-

munications Commission. It must be pointed ovt to the

Court that while the City has made the unsubstantiated

allegation that one of its primary purposes in entering into

LESTE LES LI LT EL I POE OS Oe EE ae

the Franchise Agreement was to provide revenue for the

City, as a result of these FCC regulations, it is no longer

legally permissible for a municipality to use a CATV fran-

chise to raise revenue for general municipal purposes.

In the light of several court decisions regarding the con-

stitutionality of gross receipts CATV franchise fees, in-

cluding Wonderland Ventures, Inc. v. City of Sandusky,

supra, the Federal Communications Commission acted to

resolve the issue of what is to be considered an acceptable

fee for the grant of a CATV franchise. By so acting this

federal regulatory agency preempted the right of a state or

local governmental body to negotiate or demand a fee in

excess of a small percentage charge in exchange for the

right to operate a CATV system.

As of March 31, 1972, the FCC Rules and Regulations

dealing with cable television franchises demand that

[t]he franchise fee must be reasonable (e.g., in the

range of 3-5% of the franchisee’s gross subscriber

revenues per year from cable television operations in

the community (including all forms of consideration,

such as initial lump sum payments)). P & F RADIO

REG. { 85.31 (March 31, 1972)

Simply stated, the federal regulations are such that there is

no longer any room for negotiation regarding a fee to be

charged by a municipality fora CATV franchise ; the FCC’s

rules are controlling.

The Court failed to recognize and to consider the effect

of the FCC’s preemption of this area of the law dealing

with CATV franchises. The Court’s decision that the in-

validity of the franchise fee provision invalidated the Fran-

chise Agreement is equivalent to a decision that these new

FCC rules and regulations pertaining to franchise fees

result in the invalidation of every franchise agreement in

Kentucky where the franchise provisions are not in con-

EL REE RRR RN TT EEN HET

formity with the FCC rules. Surely this is not the inten-

tion of this Court.

It is a long and well recognized rule that a contract con-

taining an illegal provision is not void as a whole unless

the legislative or regulatory body enacting the law demon-

strates an intention to invalidate such contracts as a whole.

A contract in violation of a statutory provision gen-

erally is void or illegal only if the legislative body

enacting the statute evidences an intention that such

contracts be considered void or illegal. See, e.g., Mc-

Cullough Transfer Co. v. Virginia Sur. Co., 213 F. 2d

440 (6th Cir., 1954); Macco Const. Co. v. Farr, 137

F. 2d 52 (9th Cir. 1943); Guffey-Gillespie Oil Co. v.

Wright, 281 F. 787 (8th Cir., 1922); Taleo Capital

Corp. v. Canaveral Int’l. Corp., 225 F. Supp. 1007

(S. D. Fla. 1964) ; 17 C.J.S. Contracts 4 202 at p. 1007

(1963). Otherwise . . . the contract itself remains

in full force and effect.

Ets-Hokin € Galvin, Inc. v. Maas Transport Inc., 380

F. 2d 258, 260 (8th Cir., 1967).

The Court simply failed to consider that by the enactment

of the above mentioned rules and regulations, the FCC pre-

empted any right the City might have had to raise revenue

by the use of such a CATV frarchise.

The FCC’s purpose to be served by the enactment of

these rules and regulations was to “open up cable’s poten-

tial to the public,” Proposals For Regulation of Cable

Television Submitted to Congress by The Federal Com-

munications Commission (August 5, 1971) not to invalidate

all franchises which do not conform to the rules. The FCC

reemphasized this purpose in a Letter Ruling, dated Au-

gust 22, 1972, entitled “Franchise Provisions At Variance

With FCC Cable Television Rules,” (See Appendix “A”)

in which it stated

ELL BEL LE TIE LETO LIS HOE LG

that franchises (should) be drawn to include sever-

ability clauses that will enable the Commission to au-

thorize system operations without the delay that might

be created by the necessity for franchise amendment.

The Franchise Agreement in question here has such a

severability clause, yet the Court’s decision contradicts not

only the intention of the parties in this regard, but the

stated position of the FCC as well.

The FCC, under its rule making authority, has deprived

the City of any authority to raise revenue by the use of

CATV franchises. By such action, the FCC did not intend

to jeopardize the franchises of every CATV operator. But

the Court’s decision, as it now stands, does jeopardize every

CATV franchise in the state of Kentucky which does not

conform to the rules and regulations of the Federal Com-

munications Commission. It is respectfully submitted that

the Court failed to adequately consider the vast implica-

tions of its decision upon all the holders of CATV fran-

chises in Kentucky, and that such a consideration is essen-

tial to a proper decision in this case.

CONCLUSION

For the reasons stated above, it is respectfully sub-

mitted that the decision of this Court reversing the decision

of the Daviess Circuit Court is in error and said decision

should be reconsidered.

Respectfully submitted,

Encar A. ZineMaNn

Jon L. FLEISCHAKER

Wyatt, Grarton & Sioss

300 Marion E. Taylor Building

Louisville, Kentucky 40202

Attorneys for Appellee

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.