City of Lancaster v. Netflix, Inc.City of Lancaster v. Netflix, Inc.
Los Angeles County Super. Ct. No. 21STCV01881
Schneider Wallace Cottrell Konecky, Todd M. Schneider, Jason H. Kim; Andrus Anderson, Jennie Lee Anderson; Messing & Spector, Noah A. Messing, and Phillip M. Spector for Plaintiff and Appellant.
Korein Tillery, Steven M. Berezney, and Garrett R. Broshuis for City of Creve Coeur, Missouri, Gwinnett County, Georgia, City of Brookhaven, Georgia, and
Latham & Watkins, Jean A. Pawlow, Mary Rose Alexander, Peter E. Davis, Ward A. Penfold, Robert C. Collins III, and Michael A. Hale for Defendant and Respondent Netflix, Inc.
Wilson Sonsini Goodrich & Rosati, Victor Jih, Conor Tucker, Eric Kohan, and Christopher Hurley for Defendant and Respondent Hulu, LLC.
Kilpatrick Townsend & Stockton, Adam H. Charnes, and Samuel Z. Hyams for DIRECTV, LLC as Amicus Curiae on behalf of Defendants and Respondents.
Steptoe & Johnson, William Travis West, Robyn C. Crowther, and Melanie A. Ayerh for DISH Network, L.L.C. and Sling TV LLC as Amici Curiae on behalf of Defendants and Respondents.
INTRODUCTION
Plaintiff and appellant City of Lancaster (the City) challenges a judgment of dismissal entered after the trial court sustained demurrers to its first amended complaint without leave to amend. Defendants and respondents are Netflix, Inc. (Netflix) and Hulu, LLC (Hulu).
The City brings the present action against Netflix and Hulu under the Digital Infrastructure and Video Competition Act of 2006 (
networks. The City contends Netflix and Hulu are video service providers within the meaning of the Act and that they have been providing video service within its boundaries without the benefit of a state franchise. The City seeks monetary damages (unpaid past franchise fees) and declaratory relief (an order compelling Netflix and Hulu to obtain state franchises and pay franchise fees going forward).
We affirm the judgment. Although the Act expressly authorizes a local government to sue a franchise holder concerning unpaid or underpaid franchise fees, the Act does not authorize a local government to seek franchise fees from non-franchise holders. And because the City‘s declaratory relief claim is wholly derivative of its claim for damages, it also fails.
REGULATION OF VIDEO SERVICE PROVIDERS
At the time the Legislature enacted the Act, a majority of California residents (63 percent) received their television programming through cable companies. Cable companies had previously negotiated individual contracts with local governments in approximately 400 jurisdictions to use public rights-of-way for their cable networks. Non-cable subscribers used digital satellite (27 percent) and over-the-air broadcast (10 percent). (Senate Energy, Utilities and Communications Committee, Analysis of Assembly Bill No. 2987 (2005-2006 Reg.
Sess.) June 29, 2006 [“Committee Analysis of June 29, 2006”] p. 2.)
But as telephone companies upgraded their networks with fiber-optic cables, they gained the ability to transmit television programming—and compete directly with cable operators. The telephone companies, which were investing billions in infrastructure upgrades, favored a single, statewide system authorizing the construction and maintenance of their new networks. (Committee Analysis of June 29, 2006, p. 2.) The Legislature agreed.
The Legislature had the following concerns, among others, in mind when it adopted the Act:
- Creating a fair and level playing field for all market competitors that does not disadvantage or advantage one service provider or technology over another.
- Promoting widespread access to the most technologically advanced cable and video services to all California communities in a nondiscriminatory manner regardless of socioeconomic status.
- Protecting local government revenues and their control of public rights-of-way.
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Requiring market participants to comply with all applicable consumer protection laws. - Complementing efforts to increase investment in broadband infrastructure and close the digital divide.
- Continuing access to and maintenance of the public, education, and government channels.
- Maintaining all existing authority of the Commission as established in state and federal statutes.
(
The Act regulates all “video service providers”, i.e., cable operators and other providers of “video programming.”2 As pertinent here, the Legislature transferred responsibility for contracting with video service providers from local governments to the state. Specifically, the Act directs the Commission to issue state franchises authorizing the provision of video services in the state. (
for use of the public rights-of-way to construct and maintain their networks. (
FACTS AND PROCEDURAL BACKGROUND
1. Original Complaint; Demurrers
The City initiated this putative class action suit against Netflix and Hulu (together, the Companies) in January 2021. The original complaint was purportedly filed on behalf of “[a]ll California cities, counties, and/or joint powers authorities” (collectively, local governments) in which Netflix, Hulu, or both, have provided video service.3 The complaint asserted two claims: violation of the Act and declaratory relief.
The Companies demurred to the original complaint on a variety of grounds, including that the Act does not apply to the Companies because they do not operate any “networks” or “systems” in public rights-of-way, and that the Companies are not required to remit franchise fees to the local governments because
they do not hold state franchises. The Companies also argued that the City did not have a private right of action under the Act.
The court sustained both demurrers with leave to amend.
2. First Amended Complaint
The City filed the operative first amended complaint in October 2021. Like the original complaint, the operative complaint states two claims: violation of the Act and declaratory relief.4
In the first cause of action for violation of the Act, the City alleges the Companies provide video service in California and are video service providers within the meaning of
The City‘s declaratory relief claim seeks a judicial declaration that the Companies have violated the Act by failing to obtain state franchises from the Commission (
3.1. Demurrers
Netflix demurred to the amended complaint on several grounds, including that the City does not have a private right of action against Netflix and Hulu. Specifically, Netflix argued that the Act provides only limited rights of action for local governments under
3.2. Opposition
The City opposed both demurrers. On the private right of action issue, the City asserted the Act is silent regarding both express and implied rights of action for nonpayment of franchise fees against video service providers that fail to apply for and
obtain a state franchise. But the City argued that nothing in the legislative history of the Act suggests the Legislature intended to deny a private right of action in the circumstances presented. Further, the City maintained, the absence of a private right of action against unauthorized video service providers would leave an enforcement gap because the Commission is not authorized to maintain such an action. According to the City, the Commission‘s authority is purely ministerial and very limited. And
3.3. Replies
In reply, Netflix again requested that the court sustain its demurrer without leave to amend. On the issue of the private right of action, Netflix argued that the Act is not silent on the question, as the City had asserted. Instead, the Act includes several limited private rights of action for local governments, thus evidencing the Legislature‘s intention that entities such as the City have certain specific rights of action to the exclusion of all others. In addition, Netflix urged that the Commission is
authorized to initiate an enforcement action under
4. Trial Court Order
The court sustained both demurrers without leave to amend.
Regarding the City‘s claim that it could maintain this suit against Netflix and Hulu, the court found the Act does not expressly authorize such an action. With respect to disputes over franchise fees, the court noted that
The court also noted that the Act only authorizes private rights of action by local government entities in specific and limited circumstances. (E.g.,
Finally, the court rejected the City‘s contention that an enforcement gap would exist in the absence of a private right of action on the part of local government entities. The court noted that the Act explicitly provides the Commission broad enforcement rights under
5. Judgment; Appeal
The court entered a final judgment of dismissal in favor of Netflix and Hulu on May 3, 2022. This timely appeal followed.
DISCUSSION
Although the primary focus of the parties’ and the court‘s efforts below relates to the applicability of the Act to the Companies, we focus our analysis on the threshold question of whether the Act authorizes the City to bring an action against a non-franchise holder to collect franchise fees. We conclude it does not and, on that basis, affirm the judgment in favor of Netflix and Hulu.6
1. Standard of Review
We independently review a trial court‘s order sustaining a demurrer to determine whether the operative complaint alleges facts sufficient to state a cause of action. (Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 725.) We assume the truth of all properly pled factual allegations and matters that are judicially noticeable. (Ibid.) We also liberally construe the complaint‘s allegations with a view toward substantial justice. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 43, fn. 7.)
When a demurrer is sustained without leave to amend, we decide whether there is a reasonable possibility that the plaintiff can amend the pleading to cure the defect. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) If the defect can be cured, the trial court has abused its
Finally, “ ‘we do not review the validity of the trial court‘s reasoning but only the propriety of the ruling itself. [Citations.]’ [Citation.]” (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 958.) Accordingly, we will affirm the court‘s decision to sustain the demurrer if it is correct on any theory. (Ibid.)
2. The Act does not authorize local governments to seek franchise fees from non-franchise holders.
2.1. Statutory Interpretation
The question before us is whether the Act authorizes the City, expressly or impliedly, to bring a private right of action against a non-franchised video service provider to collect past-due franchise fees.7 Familiar principles of law govern our interpretation of the Act and related statutory provisions.
“ ‘ “[O]ur task is to ascertain the intent of the Legislature so as to effectuate the purpose of the enactment. [Citation.] We look first to the words of the statute, which are the most reliable indications of the Legislature‘s intent. [Citation.] We construe the words of a statute in context, and harmonize the various parts of an enactment by considering the provision at issue in the context of the statutory framework as a whole.” ’ (Kim v. Reins International California, Inc. (2020) 9 Cal.5th 73, 83 (Kim).) If ‘ “the [statutory] language supports more than one reasonable construction, then we may look to extrinsic aids, including the ostensible objects to be achieved and the legislative history.” ’ (Ibid.)” (Rodriguez v. Superior Court (2023) 15 Cal.5th 472, 496–497.)
As to whether the Act authorizes the present action by the City, our Supreme Court has provided additional guidance: “A violation of a state statute does not necessarily give rise to a private cause of action. (Vikco Ins. Services, Inc. v. Ohio
Indemnity Co. (1999) 70 Cal.App.4th 55, 62 (Vikco).) Instead, whether a party has a right to sue depends
“A statute may contain ‘ “clear, understandable, unmistakable terms,” ’ which strongly and directly indicate that the Legislature intended to create a private cause of action. (Moradi-Shalal, supra, 46 Cal.3d at p. 295.) For instance, the statute may expressly state that a person has or is liable for a cause of action for a particular violation. (See, e.g.,
violation of this chapter and, in addition thereto, for the recovery of damages.’];
The City contends
We examine the text of
within its jurisdiction. (
The specific subsection relied upon by the City,
The City focuses narrowly on a few words found in the final sentence of
Further, the compensation at issue—the franchise fee—is only owed by a franchise holder. As explained,
The City complains that this interpretation of the statute is incorrect because the Legislature used broad rather than limiting language in the final sentence of
The City also believes it can bring an action under
to the local entity a state franchise fee . . .”];
And even
franchise, shall be made within three years and 45 days of the end of the quarter for which compensation is remitted, or three years from the date of the remittance, whichever is later. Either a local entity or the holder may, in the event of a dispute concerning compensation under this section, bring an action in a court of competent jurisdiction.” (Italics added.)
Finally, the City argues that the court erred in following Lu, supra, and requiring “ ‘ “clear, understandable, unmistakable terms,” ’ which strongly and directly indicate that the Legislature intended to create a private cause of action.” (Lu, supra, 50 Cal.4th at p. 597.) According to the City, the “clear and unmistakable” standard only applies when the question is whether a statute creates any private right of action. To the extent the question relates to
2.3. The Act does not contain an implied right of action authorizing a local government entity to maintain an action for damages against a non-franchise holder.
In light of our conclusion that
The City relies on two cases, Mabry v. Superior Court (2010) 185 Cal.App.4th 208 (Mabry) and Ragland v. U.S. Bank National Assn. (2012) 209 Cal.App.4th 182 (Ragland), to assert that “a ‘private right of action may inhere within a statute, otherwise silent on the point, when such a private right of action is necessary to achieve the statute‘s policy objectives.’ ” Further, according to the City, “courts will recognize an implied cause of action when ‘[t]here is no administrative mechanism to enforce [the statute], and a private remedy is necessary to make it effective.’ ” This is not an accurate statement of the law, however.
Mabry, decided by the Court of Appeal in June 2010, held that
constructions of statutes that render them advisory only. (Mabry, supra, 185 Cal.App.4th at p. 218.) Two months later, our Supreme Court issued its opinion in Lu.9 There, the court considered whether
Following Lu, we examine the statements of legislative intent included in the text of the Act and the Act‘s legislative history to determine if the Legislature intended to allow local government entities to sue non-franchise holders. (Lu, supra, 50 Cal.4th at p. 597 [noting court may consider legislative history to ascertain whether Legislature intended to create private right of action].) The City first argues the statements of legislative intent found in
Indeed, the only reference to enforcement of the state franchise requirement found in
providers and to ensure full
The overall structure of the Act also suggests that the Commission, rather than local governments, is responsible for any enforcement issue relating to the state franchise requirement. Specifically,
notice requirements on the Commission (
Further, the Legislature delegated certain enforcement tasks to local governments in other sections of the Act. Specifically, the Act expressly provides limited rights of action for local governments under
Legislature never intended to create such a right of action.” (Lu, supra, 50 Cal.4th at p. 601.)
In sum, we conclude that the Legislature did not intend to allow local governments to sue non-franchise holders under the Act.
3. The court did not err in rejecting the City‘s claim for declaratory relief.
The City argues the court erred in concluding that it cannot obtain a declaratory judgment that requires the Companies to obtain state-issued franchises. We disagree.
In the operative complaint, the City realleges in the declaratory relief claim each of the allegations that provide the basis for its damages claim under the Act. It then alleges that “[a]n actual controversy has arisen and now exists between Plaintiff and the other Class members, on the one hand, and Defendants on the other” because the Companies “have failed to comply with their obligations under the
action . . . for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or
But a declaratory relief claim is subject to general demurrer where it relates to a substantive claim that is invalid as a matter law. (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2023) ¶ 7:42.12.) “Where a trial court has concluded the plaintiff did not state sufficient facts to support a statutory claim and therefore sustained a demurrer as to that claim, a demurrer is also properly sustained as to a claim for declaratory relief which is ‘wholly derivative’ of the statutory claim. [Citation.]” (Ball v. FleetBoston Financial Corp. (2008) 164 Cal.App.4th 794, 800.) As is evident from the complaint, the City‘s declaratory relief claim is wholly derivative of the proposed cause of action for violation of the Act. The first cause of action seeking past due franchise fees is based on the Companies’ failure to obtain state-issued franchises. The declaration sought by the second cause of action is a judicial declaration that the Companies must obtain state-issued franchises. Our decision, however, makes clear that it is the Commission, not the City, that should enforce issues relating to the issuance of a video service franchise.
Further, although the City‘s action is directed at the Companies, the City‘s declaratory relief claim is essentially a thinly veiled request that we order the Commission to issue franchises to the Companies or to institute an enforcement action against them. “Declaratory relief generally is not available to use the courts to tell an administrative agency how to do its job. An action for declaratory relief ‘does not confer upon the court the authority to make pronouncements in a field reserved to other branches of government. [Citation.]’ [Citation.]” (Monterey Coastkeeper v. California Regional Water Quality Control Bd., etc. (2022) 76 Cal.App.5th 1, 18.) We have interpreted the Act to delegate the enforcement of franchise-related issues, including enforcement, to the Commission. The court appropriately preserved the Commission‘s jurisdiction by dismissing the declaratory relief claim.
The judgment is affirmed. Respondents Netflix, Inc. and Hulu, LLC shall recover their costs on appeal.
CERTIFIED FOR PUBLICATION
LAVIN, J.
WE CONCUR:
EDMON, P. J.
EGERTON, J.
Notes
“ ‘Video service’ means video programming services, cable service, or OVS service provided through facilities located at least in part in public rights-of-way without regard to delivery technology, including Internet protocol or other technology. This definition does not include (1) any video programming provided by a commercial mobile service provider defined in
“ ‘Video service provider’ means an entity providing video service.” (