L.A. Suburb to Sue Time Warner


The city of Santa Clarita, Calif., a Los Angeles suburb, plans to sue one of its two local cable operators, Time Warner Cable, to resolve a dispute over franchise-fee payments.

The community claimed that Time Warner owes $220,000 in back franchise fees, plus interest and penalties. The parties have been discussing the issue, but regulators apparently ran out of patience. The City Council unanimously directed city staff Oct. 16 to pursue legal action.

The community is home to approximately 26,000 Comcast Corp. subscribers and 18,000 Time Warner homes. As part of the city’s preparation for refranchising negotiations, Santa Clarita officials audited franchise-fee payments of the two operators dating back to 1997.

That date is significant: In 1997, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of cities in the so-called fee-on-fee dispute between cities and cable companies. In City of Dallas vs. the Federal Communications Commission
, the court said fees that operators pass through to consumers to pay their cable-franchise fees must be counted as part of systems’ gross revenue. That has the effect of raising the franchise-fee payments to cities.

Cities outside of the jurisdiction of Fifth Circuit states needed to cite the decision and make it clear that franchisees were to pay fees that are computed including the pass-through.

The Santa Clarita audit indicated that Comcast had no deficiencies in its franchise-fee payments, deputy city attorney Brad Wohlenberg said. But Time Warner has not paid fee-on-fee increases to the city, per the Dallas decision, he added.

Time Warner spokesman Deane Leavenworth said the company and city officials continue to meet regularly. "We expect to come to a resolution," he added.

Wohlenberg said attorneys have not yet decided whether the lawsuit will be filed in state or federal court. "We will file. We just want a proper complaint in the right venue," he added.

The city has extended the franchise agreement with both companies to allow more time to complete refranchise negotiations. Instead of expiring Nov. 7, it will run until April 4.